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Arizona’s New Mini-COBRA Statute Has Arrived, but Is Preemption a Concern?

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The Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”) requires employers who have 20 or more employees and who offer a group health insurance plan to provide enrollees with a right to continue coverage after the occurrence of certain qualifying events.  Effective January 1, 2019, Section 20-2330 of the Arizona Revised Statutes (“A.R.S.”) seeks to extend a similar right to Arizona employees of “small employers” who employ an average of at least one but fewer than twenty eligible employees during the preceding calendar year.  The new rule applies to insured health benefit plans issued or renewed after December 31, 2018.  Self-insured health benefit plans are exempt from Section 20-2330.

Section 20-2330, also referred to as “mini-COBRA,” requires small-employer health benefit plans issued in Arizona and covering Arizona employees and dependents to offer continuation of coverage to enrollees and any qualifying dependents upon the occurrence of certain qualifying events such as voluntary or involuntary termination for a reason other than gross misconduct, divorce or separation from the enrollee, and death of the enrollee.

Section 20-2330 additionally requires small employers to notify enrollees and qualifying dependents of the right to continue coverage at the full cost of the coverage plus an employer-administrative fee that may not exceed 5% of the premium.  The notice must be provided within 30 days after a qualifying event and must contain certain information described in the statute. The Arizona Department of Insurance has provided a sample form for employers to use that is presumed to comply with Section 20-2330.  The sample form can be found here.

Enrollees generally must elect continuation coverage in writing for the enrollee and any qualified dependent within 60 days of receipt of the employer notice and must submit the first premium payment to the employer within 45 days of the election.  Coverage under Section 20-2330 generally must continue for 18 months but can be longer for certain disabled dependents or if another qualifying event occurs during the 18-month period.  There currently appears to be no penalty for failure to comply with Section 20-2330.

Small employers subject to the new rule might want to coordinate with their health plan insurer to confirm compliance with the statute.  Because Section 20-2330 imposes duties on both insurers and employers, there is a potential argument that the statute is preempted by the Employee Retirement Income Security Act of 1974 (“ERISA”).  Presumably, most health insurance companies offering health insurance in Arizona will comply with the new rule.  Additionally, some insurance companies might assist small employers with the notice and other requirements imposed on employers.  So before proceeding, small employers should coordinate with their health insurers.  Employers whose health insurers do not assist with these duties may need to hire a COBRA administrator if they do not have the in-house resources to comply.

The full language of the new rule can be found in A.R.S. § 20-2330.  As of the date of this blog, no regulations regarding Section 20-2330 have been issued.