States Order Insurers to Let Employers Cover Furloughed Workers

Directives seek to continue coverage for workers no longer eligible under group plans

Stephen Miller, CEBS By Stephen Miller, CEBS April 20, 2020
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In response to the coronavirus pandemic, several state insurance commissioners have ordered insurance companies to let employers continue covering employees under group policies, even if employees would normally lose eligibility due to layoffs or reduced hours.

Benjamin J Conley, a partner at law firm Seyfarth Shaw in Chicago, explained that these mandates "provide an opening for employers to voluntarily bridge coverage during a furlough, notwithstanding the fact that covered participants no longer meet the plan's eligibility criteria. While this is state-specific, most of the orders are directives to insurance carriers rather than employers," he noted.

The directives, to date, allow employers to continue coverage for newly ineligible employees under their group plans, but they don't require that employers do so. "That said, for a fully insured plan, a state insurance commission could arguably require such a coverage bridge," Conley noted.

It is not yet clear how many employers will agree to continue coverage under their group plan in these situations. "Typically, the employer dictates eligibility," Conley said. "Very few plans continue coverage for terminated employees other than through COBRA continuation or a state-law COBRA equivalent."

State Directives

These states are among those that issued directives to insurance companies in March and April:

  • California's insurance commissioner, Ricardo Lara, requested that all insurance companies provide at least a 60-day grace period so that insurance coverage is not canceled for nonpayment "during this challenging time due to circumstances beyond the control of the insured."
  • Colorado's department of regulatory agencies directed insurers to make reasonable accommodations to prevent businesses and employees from losing coverage due to nonpayment of premiums during the crisis. Reasonable accommodations include extending premium grace periods or premium deferrals, waiving late-payment fees or interest, and putting a moratorium on cancellations for nonpayment.
  • Maine's insurance bureau issued an order that a company's health insurance provider cannot deny coverage if an employer lays off or furloughs a worker and wants to continue offering employer-sponsored group health insurance coverage to the worker. Eric Cioppa, superintendent of the Maine Bureau of Insurance, said he issued the order "to avoid the risk that people might lose their health benefits coverage when the need is greatest."
  • Ohio's department of insurance directed insurers to let employers continue covering employees who would otherwise be ineligible due to a decrease in weekly work hours, regardless of any "actively at work" eligibility requrements.
  • Wisconsin's insurance commission is encouraging insurers to work with employers to provide the option of continuing dental, vision and prescription drug benefits when offered as separate policies.

Directives Affect Fully Insured Employers

"State insurance commissioners only have the authority to regulate fully insured products issued in their state," Conley said. That's because the Employee Retirement Income Security Act generally pre-empts states from mandating actions for employers that sponsor self-funded plans.

In a self-funded (or self-insured) group health plan, the employer assumes the financial risk of paying for employees' health care claims under the cost-sharing terms of the plan. A third-party administrator (TPA), typically an insurance company, usually manages the plan. For fully insured plans, the employer and employees pay premiums directly to an insurer, which pays health providers based on the cost-sharing terms of the plan.

Conley noted, "We've seen a few states strongly recommend that employers sponsoring self-insured plans provide bridge coverage [if they're able to do so], but even those directives seem to recognize that the state insurance commissioners have no authority to expressly order this. That said," he added, "many employers sponsoring self-funded plans have reinsurance, which could be governed by state law."

[SHRM members-only HR Q&A: Can we keep furloughed or laid-off employees on our group health plan?]

COBRA Implications

Generally, COBRA requires employers that have 20 or more employees and provide group health plan coverage to offer continuation coverage. The employee generally pays the full cost of the insurance premiums, and the law allows employers to charge 102 percent of the premium, keeping the extra 2 percent to cover its administrative costs.

COBRA continuation coverage "is only triggered if there is a reduction in hours or termination of employment that causes a loss of coverage," Conley said, "so if an employer bridges coverage and there is no corresponding loss of coverage, then there is no COBRA event."

However, when states require insurance carriers to offer a grace period, such as 60 days, for delinquent payments, "this could also impact people [already] on COBRA who would typically lose coverage if payment is more than 30 days late," he pointed out.

"To date, we have not seen an order extending COBRA, requiring a modification of the COBRA subsidy, etc.," Conley said. "That could be forthcoming depending on the scope of the economic fallout from the pandemic. But again, these mandates would typically only impact fully insured plans."

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Coverage for Cash-Strapped Employers

Some states have also directed insurance companies to continue providing coverage to fully insured employer plans despite the employer's failure to pay its monthly premiums.

"Some have simply encouraged the carriers to be flexible and be patient with employers, to work with them and figure out ways to allow them to continue their plans," said Scott Behrens, director of government relations at benefits advisory firm Lockton Companies. "Others have been more forceful and mandated a grace period to allow plans to get caught up on premiums, maybe 60 days or so. And the most draconian [from the insurer's perspective, is when] departments of insurance have told carriers they cannot cancel an employer's policy for failure to pay premiums right now."

Ed Fensholt, director of compliance services at Lockton, noted that self-insured companies have asked if their plan's TPA is subject to these state directives if it is an insurance company. In other words, he said, "they're wondering, 'Does the TPA have to pay our self-funded claims when we can't send them the cash to do that?' And the answer is no."

Behrens added, "The joy of being self-funded is you escape the state-by-state regulation of insurance, but in this case you're not going to get the benefit of those admonitions [that affect insurance carriers] from state departments of insurance."

Related SHRM Articles:

Layoffs, Furloughs and the ACA's Employer Mandate, SHRM Online, April 2020

Employers' Health Care Costs Expected to Rise Due to Coronavirus, SHRM Online, April 2020

How the CARES Act Changes Health, Retirement and Student Loan Benefits, SHRM Online, March 2020

IRS Relaxes High-Deductible Terms for COVID-19 Testing and Treatment, SHRM Online, March 2020

COBRA Notice Litigation Mushrooms, Along with Settlements, SHRM Online, March 2020

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