Federal COBRA, State Continuation, and Medicare as Secondary Payer (MSP)

Federal COBRA, State Continuation, and Medicare as Secondary Payer (MSP): important differences in how small employers must count their workers to determine eligibility

Federal COBRA gives certain former employees, retirees, spouses, former spouses, and dependent children the right to temporary continuation of health coverage at group rates. Employers with 20 or more employees are usually required to offer COBRA coverage and to notify their employees of the availability of such coverage.  But what if your group has ‘around’ 20 employees, or, has a mix of full and part-time employees–how do you determine if you are subject to COBRA? According to the US DOL:

Group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA.  Both full and part-time employees are counted to determine whether a plan is subject to COBRA.  Each part-time employee counts as a fraction on an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

In states like NJ, NY, PA and DE, when a small employer is not subject to Federal COBRA they are instead subject to state continuation provisions which are modeled after COBRA and sometimes provide richer benefits (as in NY where the length of continuation of health coverage is 36 months) or provide a lesser benefit (as in PA where continuation is only 9 months).

In determining if the small employer group health plan is secondary (pays claims second) for Medicare eligible employees and their dependents, the way the small employer counts employees is different, per CMS:

For beneficiaries age 65 or over who have Group Health Plan (GHP) coverage because of their current employment or their spouse’s current employment, Medicare is the secondary payer. A GHP is any health plan that is for, or contributed to by, an employer of 20 or more employees that provides medical care, directly or through other methods, such as insurance or reimbursement, to current or former employees and their families.

The “20 or more employees” threshold is met when an employer has 20 or more full-time and/or part-time employees for each working day in each of 20 or more calendar weeks in the current calendar year or the preceding calendar year. The 20 calendar weeks do not have to be consecutive. The requirements of the MSP Law are based on the number of employees, not the number of individuals covered under the plan.

It’s important to note that for plans that do not meet the above (employers with up to 19 employees) that Medicare is the primary payer for eligible employees and/or their spouses which means they must have both parts A and B active even if continuing to stay on the GHP (for secondary coverage) as otherwise claims for inpatient (part A) or outpatient (part B) will be denied by the GHP.