sign in sign up
<<
Home , Insurance law

“Health Coverage for Terminated Employees Under New York ” By Steven J. Glaser

5-6-09

The availability of continued medical coverage for terminated employees and their dependents has even more significance in these difficult times. Although federal COBRA rights generally garner attention in this area rather than New York law, many small employers in New York are not subject to COBRA rules because they have fewer than 20 employees. Even those employers who are subject to COBRA have no responsibility to provide continuation coverage after the COBRA period lapses.

Through its role as a regulator of contracts, New York makes available to many employees and their dependents continued coverage that is not available under COBRA, and New York law may impose responsibilities on employers purchasing health care insurance in New York to apprise employees and their dependents of those coverage rights.

Continuation Coverage

Sections 3221(m) (for group policies of health insurers) and 4305(e) (for group policies issued by HMOs) of the New York Insurance Law require insurance companies and HMOs issuing group contracts in New York to provide for continued coverage of employees and their dependents under a group policy upon termination of employment or other events typically triggering continuation coverage under COBRA, for essentially the same periods and under the same conditions as COBRA coverage (e.g., employee payment of premiums after the event giving rise to such coverage).

To obtain such coverage, §§3221(m)(2)(A) and 4305(e)(2)(A) provide that a group contract must permit the employee or affected dependent (e.g., a divorced spouse of a covered employee) to elect coverage within 60 days after the later of notice from the employer of continuation rights under the policy or the event giving rise to the continuation coverage. (Interestingly, those appear not to deal with a situation where notice of continuation rights is not given). Thus New York employees (and their dependents) of small employers who are not subject to COBRA, but who purchase medical coverage contracts, are in much the same position as employees (and their dependents) of employers who by their size are subject to COBRA.

Conversion Rights

Sections 3221(e) and 4305(d) of the New York Insurance Law go further than COBRA by requiring group health insurance contracts to contain conversion privileges. These privileges permit an individual who loses coverage because of the expiration of his continuation coverage (whether under federal COBRA or the terms of the group contract as mandated by New York insurance law) or because the group contract itself is terminated by the employer or the carrier (an event which will eliminate any COBRA requirements if a covered employer ceases to maintain any other health plan), to obtain individual coverage.

405 LEXINGTON AVENUE, NY, NY 10174-1299 TEL: 212.554.7800 FAX: 212.554.7700 WWW.MOSESSINGER.COM No evidence of may be required, although, unlike continuation coverage, the premium required need not reflect the premium paid under the group policy, probably causing additional expense to an applicant. Hence, individuals with serious health concerns may continue coverage, even after their continuation coverage under a group policy terminates (whether the termination is under New York law or COBRA), albeit at a greater cost.

Sections 3221(e)(8) and 4305 (d)(3) require group contracts to provide that notice of the right to convert to individual coverage must be given within 15 days after the event giving rise to the privilege and the privilege must be exercised within 45 days after such event. If timely notice is not given, an individual has 45 days after notice is given to elect coverage, so long as notice is given within 90 days. If notice is never given, the exercise privilege lapses 90 days after the date of the event giving rise to the election.

Employer's Notice Obligation

Since New York's continuation and conversion privileges are imposed through the mechanism of regulating the contents of insurance policies and HMO contracts issued in New York, rather than directly on employers as is generally the case for COBRA, what obligations does an employer, who usually will not be the issuer of the contract, have to make such potentially valuable rights known to employees at the appropriate time and what potential liability does he face if he does not do so?

Section 217(3) of the New York Labor Law, as interpreted by the Insurance Department in opinion 07-05-18 (May 29, 2007), requires an employer to give notice to employees if the carrier terminates a group health policy and the policy is not replaced. Since that section only applies to the relatively rare situation where the carrier terminates the contract (presumably by reason of nonpayment of premiums by an employer going out of business), it does not deal with the more common situations in which an employee has exhausted his continuation coverage or where conversion rights arise under a continuing group policy because the employer is going out of business and itself terminates the contract without obtaining a replacement.

With respect to conversion rights, Insurance Law §§3221(e)(8)(C) and 4205(d)(3)(C) merely provide that carriers may place on the policyholder the responsibility to give notice of such rights. If an employer purchases such a group contract in New York, does he have a duty to do so which is enforceable by the employee, or has the carrier merely been relieved of any such responsibility?

Even though the Insurance Law itself appears to be silent on the subject and by its terms appears to deal only with the content of group policies rather than the affirmative obligations of employers as group policyholders in administrating such policies, the Insurance Commissioner in 11 NYCRR Reg. 360.7(b)(4) appears by to have imposed an obligation on employers to give notice of continuation coverage under a group policy within 14 days after an employee terminates service or the employer receives notice from the employee of another qualifying event (such as a divorce). However, that regulation does not deal with conversion privileges and does not set forth consequences if an employer fails to give the required notice. Despite the lack of much statutory or regulatory guidance, in Antinora v. Nationwide Company, 76 Misc. 2d 599, 350 NY Supp 2d 863 (Monroe Cty Ct. 1973), the court recognized a duty of an employer to give notice to an employee of his conversion rights under a group health policy under a theory imported from the group life insurance area that an employer owes his employees a duty of good faith and due care in the administration of a group policy. The court held the employer liable for medical expenses which its former employee incurred within the 90-day period during which the conversion privilege could have been exercised had notice been given.

Presumably, a similar duty could apply to employers with respect to notice of continuation rights. However, it is possible that an employer may fulfill such notice requirements by the provision of benefit booklets explaining all continuation and conversion privileges upon an employee's commencement of coverage. Dicta in Aronson v. Butcher's Workmen's Union, 1982 U.S. Dist. Lexis 11,618 (S.D.N.Y. 1982), a case involving a group life , suggests such a possibility, but no reported case so holds with respect to group medical policies and the Insurance Law appears to contemplate a more contemporaneous notice mechanism.

The rule in Antinora may expose an employer to substantial damages in the form of uninsured medical expenses if he fails to give notice of New York continuation rights or New York conversion rights (the latter rights apply both to COBRA eligible employees and those not covered by COBRA). In view of the sparse guidance and the possibility of substantial damages, employers should not necessarily rely on employee benefit booklets and should work closely with their carriers to insure that employees and their dependants receive timely notice of their continuation and conversion rights under New York law.

Steven J. Glaser is a partner with Moses & Singer. His practice focuses on tax, pension, corporate and banking law.

Steven J. Glaser New York, N.Y.

Reprinted with permission from the "May 6, 2009" edition of the “New York Law Journal” © 2009 Incisive media Properties, Inc. All rights reserved. Further duplication without permission is prohibited. Disclaimer Viewing this document or contacting Moses & Singer LLP does not create an attorney-client relationship.

This document is intended as a general comment on certain recent developments in the law. It does not contain a complete legal analysis or constitute an opinion of Moses & Singer LLP or any member of the firm on the legal issues herein described. This document contains timely information that may eventually be modified or rendered incorrect by future legislative or judicial developments. It is recommended that readers not rely on this general guide in structuring or analyzing individual transactions or matters but that professional advice be sought in connection with any such transaction or matter.

Attorney Advertising It is possible that under the , rules or of certain jurisdictions, this document may be construed as an advertisement or solicitation.