Texas State Continuation Summary for Small Employers

Overview of Texas State Continuation

State continuation coverage laws like Texas’ are sometimes referred to as "mini-COBRA" laws and run parallel to the federal COBRA requirement. They are designed to close the gap in COBRA coverage for employers with fewer than 20 employees or to supplement it for larger employers that are subject to COBRA.
Texas law applies to employers with at least 2 but not more than 19 employees, each working a minimum of 30 hours per week, and who use an insurance plan that covers at least two employees and is subject to the Texas continuation law. Insurance policies must be converted to a large group policy , as continuation provisions are not available for small group policies in Texas.
Some plans provide for only 3 months of continuation coverage instead of 18 months, but that is an option of the insurer. Many large group insurers will allow Texas continuation requirements to be used, even for employers who are not subject to COBRA. If the employer has a large group employer policy, the insurer may agree to allow the customer to conform the coverage date to the termination date of the employee. Recently the Texas Department of Insurance has proposed a rule requiring insurers to provide this option.

Who is Eligible for Texas State Continuation

To qualify for Texas state continuation laws, the covered employee must be eligible for federal COBRA continuation coverage. In Texas, federal COBRA applies to employers with 20 or more employees for more than 50 percent of the preceding calendar days of the calendar year. This means that Texas continuation laws only impose requirements on employers with less than 20 employees, which are not subject to federal regulations.
Similar to the federal stipulations, a "qualified beneficiary" under Texas state continuation laws is a covered employee and dependent who loses group health insurance due to one of the following events: Employees and dependents (including adult children) may qualify for Texas state continuation coverage by submitting the correct forms (application for group health coverage and initial premium payment) within 63 days of the later of the initial notification of eligibility or the date of the event. Individuals must also meet the general requirements under federal COBRA, including enrollment in the employer’s group health plan for at least three months prior to termination or loss of coverage and not qualifying for any other type of group health plan. Dependent child failure to elect coverage If it is discovered after COBRA election and initial premium payment that the child of a qualified beneficiary loses the right to continued coverage because the child no longer meets the requirements listed above, the child will have a right to use a special enrollment period for that plan and may establish a new election period within 30 days of the loss of eligibility.

Length of Coverage Available Under State Laws

Because Texas law requires continuation coverage for up to 12 months, some small employers may be surprised to learn that they may be required to offer coverage for two years if they meet certain criteria. State continuation laws allow an employee who has experienced a qualifying event under the law to elect to continue his or her coverage. This right of continuation requires that the employer give qualified beneficiaries written notice of coverage. If the length of the coverage required under the state law is different than that required under federal law, the longer duration prevails. A small employer is defined as an employer that has fewer than 20 employees on a typical business day in the preceding calendar year. However, special rules apply to health care providers that are small employers. If a small health care provider with fewer than 25 employees has ceased operations or has had a reduction in workforce because of a catastrophic event, the law will require them to offer employees up to 24 months of coverage. Employers should note that state laws are preempted by the federal statute and regulations to the extent that they offer inconsistent coverage provisions. The Texas statute states that it is to be interpreted consistently with federal COBRA to ensure that an employee is not placed in a situation where he may choose not to elect for federal COBRA because he believes he already has sufficient coverage with state continuation. When a small employer does not offer federal COBRA it must comply with these provisions.

Benefits and Coverage Offered

Coverage under the Texas state continuation laws mirrors larger employer group health plan provisions. In addition, the following terms also apply: In addition, coverage provided under the Texas continuation laws are not subject to the usual coordination of benefits provisions that generally applies to such plans. Rather, coverage is provided on a primary basis. If an employee is disabled, they may be eligible for additional coverage under the Texas state continuation laws for the duration of their disability. Should the employee provide the small employer prior notice and proof of their disability, plus relevant documentation on their disability benefits, then coverage will be available for an additional 12 months beyond the regular Texas continuation period. This notice must be sent within 30 days after the employee has been terminated and the employee must also pay any additional premiums that are required. Despite the fact that the employer is still required to provide coverage during the extension of coverage due to disability, the employer is not responsible for the quality of the coverage that the employees will receive under this plan.

Notification and Enrollment Procedures

The employer is not solely responsible for ensuring the employee notifies any affected family members within the required time period. The employer has the obligation to notify the qualified beneficiary of their responsibilities, and the qualified beneficiary has the responsibility to notify any other affected family members.
Notification.
For continuation coverage to be available, all covered individuals must be properly notified about the right to continuation coverage. Communication should include the following:

1. The qualified beneficiaries must receive notification that covers:

a. The qualifying event and its date;
b. The date coverage will end and a description of conversion rights if continuation coverage is not elected;
c. A description of the plan’s procedures for electing continuation coverage and the deadline for electing continuation coverage; and
d. Identification of whom to contact regarding continuation coverage (health insurance carrier versus the employer).
An employer is required to provide notice of continuation coverage to each plan participant, after the plan administrator is notified of an event resulting in an eligible qualifying event:
What is the 18 month "qualifying event" for electing continuation of coverage?
Termination of employment, except for gross misconduct, or reduction in the hours of employment of a covered employee
Termination or reduction in hours of employment made by the employer (the employer is the plan administrator) for any employee who had not reached either age 18 or 36 months of coverage under the group health plan before the qualifying event occurs
The date of termination or reduction in hours of employment
The date that coverage ceases as a result of termination or reduction in hours of employment.
Failure to provide notice of continuation coverage may subject the employer to civil liability.
A sample of a written notification of the availability of continuation coverage can be found at 29. C.F.R. § 2540.201-3.

Cost to the Employer

The cost of state continuation coverage is set out in the Texas Insurance Code and is the lesser of: (1) the COBRA cost sharing amount; or (2) 100% of the employer’s group rate applicable under the group health plan, plus a 2% administrative fee. Texas law specifies that the 2% administrative fee must be added only to the extent that an employer does not assess a plan administrative fee that is higher than the 2%. This means an employer cannot charge a premium greater than the amount of the group health plan premium charged for a similar class of employee. There is no option to add an additional administrative fee. As a result , there is no discretion to require a premium payment from the qualified beneficiary that is higher than the amount of the group health plan premium charged to the similarly situated active employee. This could result in a significant cost reduction in premium for the qualified beneficiary.
The premium arrangement detailed above could be cost prohibitive for small employers with high claims costs. Without the ability to add a 2% administrative fee for employer provided state continuation coverage, small employers may be reluctant to provide this benefit. While smaller employers are most affected by the COBRA and TSC requirements, the quarter to quarter profitability of small employers can also create significant hurdles to providing continuing coverage. Current income streams may not permit immediate payment of premiums. The lack of a grace period can present cash flow difficulties as well.

Common Concerns and Compliance Issues

One of the biggest challenges for small employers in Texas in maintaining compliance with state continuation laws is simply a lack of awareness and knowledge. Unlike mandated federal COBRA continuation, which applies to employers with 20 or more employees, Texas state continuation applies only to smaller employers – those with two to 19 employees. Small employers are thus usually less familiar with continuation laws and how they specifically apply to them because under federal law, they are out of the picture entirely. A second challenge is as simple as the passage of time. The law is not always top of mind for employers, especially when there haven’t been any terminations. Employers, particularly small employers, can find themselves providing continuation to employees who are no longer eligible simply due to lack of perspective and general forgetfulness. Small employers may also face a challenge in determining whether the employer even has to provide continuation. There are many instances in which the employer doesn’t have to provide continuation at all. A few examples of this would be: Small employers can make some mistakes while administering continuation. One key mistake is not communicating enough to qualified beneficiaries about their rights. On the flip side, while employers are not required to send a great deal of information to qualified beneficiaries, they do have to send something. Providing too little notice or sending the notice to the wrong address can make employers legally liable for either the entire cost of the claim or the portion of the claim attributable to the employer’s failure to provide appropriate notice. So it is extremely important to make sure the employer not only sends the notice, but that they send it to the right place and with the right content.

Texas State Continuation versus COBRA

Small employers in Texas have to be aware of how the Texas state continuation laws interact with the federal COBRA law. In most cases, the Texas continuation requirements will overlap the federal requirements for larger employers, but they are not identical. It is crucial that you review your plan documents for specific details regarding your coverage, as your company could have opted to provide a higher level of protection than Texas requires. This section will focus on the similarities and differences between Texas state continuation and COBRA.
Similarities between Texas State Continuation and the Federal COBRA
In many ways, the Texas state continuation laws are designed as a supplement to the federal COBRA regulations. For this reason, the coverage provided by the Texas state laws is comparable to the federal laws in the following ways: Differences and Uniquenesses of Texas State Continuation Texas state continuation laws provide additional protections for qualifying individuals beyond what is required by the federal regulations. Although in most situations the federal COBRA laws will be the minimum standard for coverage, you should check for specific details in your plan documents, as there may be a higher level of coverage provided beyond the federal standards. The following outlines some of the most important differences between federal COBRA and Texas state continuation:
Employer Actions
Unlike the federal COBRA laws, which requires that you notify individual affected employees for qualifying events, the Texas state continuation laws put most of the burden regarding notification on the employee. The only exception is that you have to notify those clients opting for continuation coverage of their rights to do so.

Best Practices for Small Employers

Based on the foregoing review of Texas state continuation laws and the small employer considerations that surround these laws, several practices can be recommended.
Make sure that you are aware of all requirements that apply to your group health plan. For example, if you are an ERISA-covered employer with less than 20 employees, it is generally advisable as best practice to comply with state continuation laws. Make an administrative decision to either offer state continuation coverage or not. This should involve a cost-benefit analysis of handling administration with regard to the costs of the administration. While small employers may intuitively think the answer is never to offer continuation coverage because of the addition of administrative costs , this may not be the case. Providing continued health coverage may allow an employer to: It is important to keep in mind that, regardless of whether the continuation coverage is offered by the small employer, continuation coverage will carry with it additional administrative hurdles. As with most changes in the law, employers are well-served to consult with legal counsel to ensure they are addressing all aspects of the new law.