Research · 11 min read
What Continuation Coverage Keeps When a Job Ends
A prescription benefit is attached to a job, and the job ends mid-course. A federal statute lets you keep the same plan for a defined period, and the coverage it gives you has to be identical to what similar people still on the plan get.
Key takeaways
- Continuation coverage is defined as coverage identical to what similarly situated beneficiaries still on the plan receive, so a drug list, tier and approval rule carry over.
- Six qualifying events open the door, and one of them is a reduction of hours rather than a job loss.
- Four clocks run in sequence: thirty days for the employer to report, fourteen for the administrator to notify, at least sixty to elect, and forty-five before any premium can be demanded.
- The premium is capped at one hundred and two percent of the applicable premium, which is high because it is priced against the whole premium rather than an employee's share.
- The federal duty does not reach a plan whose employers normally employed fewer than twenty employees in the preceding calendar year.
Answer first: the word doing the work is identical
The statute lets a person who would lose coverage because of a qualifying event elect to continue it.
What it continues is defined precisely. The coverage must be identical to the coverage provided under the plan to similarly situated beneficiaries with respect to whom a qualifying event has not occurred.
For a medication that is the whole point. The same drug list, the same tier, the same prior authorization rule, the same quantity limit.
The definition cuts both ways. If coverage is modified for a group of similarly situated beneficiaries, it must be modified in the same manner for the people continuing it.
So continuation freezes your relationship to the plan, not the plan.
The six events that open the door
A qualifying event is defined as one of six things that, but for continuation coverage, would result in the loss of coverage.
The death of the covered employee.
The termination of employment, other than by reason of the employee's gross misconduct, or a reduction of hours.
The divorce or legal separation of the covered employee from the employee's spouse.
The covered employee becoming entitled to Medicare benefits.
A dependent child ceasing to be a dependent child under the generally applicable requirements of the plan.
And a bankruptcy proceeding with respect to the employer from whose employment the covered employee retired.
A reduction of hours sitting beside a termination is the item people miss. Losing enough hours to fall out of eligibility is the same door as losing the job.
Who gets to elect, and who the election covers
A qualified beneficiary is the spouse or dependent child who was a beneficiary under the plan on the day before the qualifying event.
Where the event is a termination or a reduction of hours, the covered employee is a qualified beneficiary too.
A child born to or placed for adoption with the covered employee during the period of continuation coverage is included as well.
One election generally carries the household. Unless the election says otherwise, an election by the employee or the spouse is deemed to include an election on behalf of any other qualified beneficiary who would lose coverage from the same event.
But where the plan offers a choice among types of coverage, each qualified beneficiary is entitled to make a separate selection.
The clocks, in the order they run
Four separate periods sit between the event and a working card, and they run in sequence.
The employer has thirty days to notify the plan administrator of a death, a termination or reduction of hours, a Medicare entitlement, or a bankruptcy proceeding.
For a divorce, a legal separation or a child losing dependent status, the duty runs the other way: the covered employee or qualified beneficiary is responsible for notifying the administrator within sixty days.
The administrator then has fourteen days from being notified to tell the qualified beneficiary about these rights.
The election period must begin no later than the date coverage terminates, and must run at least sixty days. It must also end no earlier than sixty days after the later of that date or the date of the administrator's notice.
A notification to a spouse is treated as notification to all other qualified beneficiaries residing with that spouse at the time.
There is also a duty at the front end. The plan must give written notice of these rights to each covered employee and spouse at the time coverage under the plan commences.
What it costs, and the payment clock nobody mentions
The plan may charge a premium, and the statute caps it.
The premium may not exceed one hundred and two percent of the applicable premium for the period, and may be paid in monthly installments at the payor's election.
The figure is high relative to a payroll deduction for one reason. An employee usually sees only their share of a premium, and continuation is priced against the whole of it.
The clock underneath it is the useful part. In no event may the plan require payment of any premium before the day which is forty-five days after the day the qualified beneficiary made the initial election.
After that, a payment is timely if made within thirty days of the due date, or within any longer period the plan allows.
So the sequence is: elect, then a window before the first payment can be demanded, then a grace period on each one after.
How long it lasts, and the five ways it stops early
The maximum period depends on which event opened the door.
For a termination or a reduction of hours it is eighteen months from the date of the qualifying event.
For the other qualifying events it is thirty-six months, and a second qualifying event inside the first eighteen months can extend the period to thirty-six from the original event.
A disability determination under the Social Security Act during the first sixty days of continuation coverage turns the eighteen months into twenty-nine. That only holds where notice of the determination reaches the plan administrator before the end of the eighteen months.
Coverage can also end before the maximum. It ends on the date the employer ceases to provide any group health plan to any employee.
It ends on the date coverage ceases for failure to make a timely premium payment.
And it ends on the date the qualified beneficiary first becomes, after the election, covered under another group health plan that contains no pre-existing condition exclusion reaching them, or entitled to Medicare benefits.
Two protections that are easy to miss
The statute carries two short sentences that matter more than their length suggests.
The coverage may not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability. Nothing about your health or your claims history is a gate.
And where the period expires at its maximum, a conversion option opens. During the one hundred and eighty day period ending on that expiration date, the plan must offer enrollment under a conversion health plan otherwise generally available under it.
The second one is a deadline more than a benefit. A conversion option that is only open in the last stretch is easy to walk past.
Which plans this reaches
The exception is a single sentence, and it decides the answer for a large share of workers.
The duty does not apply to a group health plan for a calendar year if all employers maintaining the plan met a size test. The test is fewer than twenty employees, normally employed on a typical business day during the preceding calendar year.
A group health plan for these purposes is an employee welfare benefit plan providing medical care to participants or beneficiaries, directly or through insurance, reimbursement or otherwise.
The definition excludes plans that are substantially all long-term care coverage, and a qualified small employer health reimbursement arrangement.
Where the federal duty does not reach, the question moves to state law, and that answer varies. This file makes no claim about any state.
How to use this on a medication that is already running
The first fact is the calendar. Everything above is a set of deadlines, and the earliest of them starts at the event, not at the day the paperwork arrives.
The second is that the coverage carries its rules with it. A prior approval granted under the plan is granted under the same plan you are continuing, which is a different question from one granted under a plan you are leaving.
The third is that the notice is a document. A plan owes a general written notice at the start of coverage and an election notice after an event, and both are things to keep.
The fourth is the trade. Continuation is expensive because it is priced against the whole premium, and it is identical because it is the same plan.
The alternative is a different plan, which is a different subject with its own timetable and its own rules.
Sources
- 29 U.S.C. 1161 — Plans must provide continuation coverage to certain individualsThat the plan sponsor of each group health plan shall provide that each qualified beneficiary who would lose coverage under the plan as a result of a qualifying event is entitled to elect, within the election period, continuation coverage under the plan; and the exception stating that the duty does not apply to any group health plan for any calendar year if all employers maintaining such plan normally employed fewer than twenty employees on a typical business day during the preceding calendar year.
- 29 U.S.C. 1162 — Continuation coverageThat the coverage must be identical to the coverage provided under the plan to similarly situated beneficiaries with respect to whom a qualifying event has not occurred, and that coverage modified for a group of similarly situated beneficiaries must be modified in the same manner for qualified beneficiaries; the eighteen-month maximum for a termination or reduction of hours and the thirty-six-month maximum for other qualifying events, with a second qualifying event inside the first eighteen months extending the period to thirty-six from the original event; the twenty-nine-month period where a disability determination under the Social Security Act is made during the first sixty days of continuation coverage and notice of it is given before the end of the eighteen months; the earlier endings on the employer ceasing to provide any group health plan to any employee, on failure to make timely payment of a premium, and on the qualified beneficiary first becoming covered after the election under another group health plan containing no reaching pre-existing condition exclusion or entitled to Medicare benefits; the timeliness rule treating a premium payment made within thirty days after the date due, or within a longer period applying under the plan, as timely; the premium cap of one hundred and two percent of the applicable premium with payment in monthly installments at the payor's election; the rule that in no event may the plan require payment of any premium before the day which is forty-five days after the day the qualified beneficiary made the initial election; the rule that coverage may not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability; and the conversion option that must be offered during the one hundred and eighty day period ending on the expiration of the maximum period.
- 29 U.S.C. 1163 — Qualifying eventThat a qualifying event means one of six events which, but for continuation coverage, would result in the loss of coverage of a qualified beneficiary: the death of the covered employee; the termination, other than by reason of the employee's gross misconduct, or reduction of hours, of the covered employee's employment; the divorce or legal separation of the covered employee from the employee's spouse; the covered employee becoming entitled to benefits under title XVIII of the Social Security Act; a dependent child ceasing to be a dependent child under the generally applicable requirements of the plan; and a proceeding in a case under title 11 with respect to the employer from whose employment the covered employee retired.
- 29 U.S.C. 1165 — ElectionThat the election period begins not later than the date on which coverage terminates under the plan by reason of a qualifying event, is of at least sixty days' duration, and ends not earlier than sixty days after the later of that date or the date of the administrator's notice; that except as otherwise specified in an election, an election by the covered employee or the spouse is deemed to include an election of continuation coverage on behalf of any other qualified beneficiary who would lose coverage by reason of the qualifying event; and that where there is a choice among types of coverage under the plan, each qualified beneficiary is entitled to make a separate selection among them.
- 29 U.S.C. 1166 — Notice requirementsThat the group health plan shall provide, at the time of commencement of coverage, written notice to each covered employee and spouse of the rights provided; that the employer must notify the administrator of a death, a termination or reduction of hours, a Medicare entitlement or a bankruptcy proceeding within thirty days of the date of the qualifying event; that the covered employee or qualified beneficiary is responsible for notifying the administrator of a divorce, a legal separation or a child ceasing to be a dependent within sixty days, and of a disability determination within sixty days of that determination; that the administrator must then notify any qualified beneficiary of their rights; that such notification must be made within fourteen days of the date the administrator is notified; and that notification to a spouse is treated as notification to all other qualified beneficiaries residing with that spouse at the time.
- 29 U.S.C. 1167 — Definitions and special rulesThe definition of a group health plan as an employee welfare benefit plan providing medical care to participants or beneficiaries directly or through insurance, reimbursement, or otherwise, excluding plans substantially all of whose coverage is for qualified long-term care services and excluding a qualified small employer health reimbursement arrangement; the definition of a qualified beneficiary as an individual who, on the day before the qualifying event, is a beneficiary under the plan as the spouse or the dependent child of the covered employee, together with a child born to or placed for adoption with the covered employee during the period of continuation coverage; and the special rule making the covered employee a qualified beneficiary where the qualifying event is a termination or a reduction of hours.
Frequently asked questions
Does continuation coverage keep the same drug list?
That is what the statute's definition says. Continuation coverage means coverage identical to the coverage provided under the plan to similarly situated beneficiaries with respect to whom a qualifying event has not occurred. The same sentence adds that if coverage is modified for a group of similarly situated beneficiaries, it is modified the same way for people continuing it. You keep your position in the plan, not a snapshot of it.
How long do I have to decide?
The election period must begin no later than the date coverage terminates, and must last at least sixty days. It must end no earlier than sixty days after the later of that date or the date the plan administrator gave you notice of these rights. The administrator's notice is itself due within fourteen days of the administrator being told about the event.
Do I have to pay before I can use it?
The statute sets a floor. In no event may the plan require payment of any premium before the day which is forty-five days after the day the qualified beneficiary made the initial election. Later payments are timely if made within thirty days of the due date, or within a longer period the plan allows. The premium itself may not exceed one hundred and two percent of the applicable premium.
A reduction in hours is not a layoff. Does it count?
The list of qualifying events names the termination of employment, other than by reason of gross misconduct, or a reduction of hours, in the same item. Losing enough hours to fall out of plan eligibility is the same door as losing the job, and it carries the same eighteen-month maximum period.
Can it be refused or priced because of my health?
The statute has one sentence on that. The coverage may not be conditioned upon, or discriminate on the basis of lack of, evidence of insurability. There is no separate health question and no separate rate for a person with claims behind them.
My employer is small. Does any of this apply?
The federal duty does not apply to a plan for any calendar year if all employers maintaining it normally employed fewer than twenty employees on a typical business day during the preceding calendar year. Beyond that boundary the question is a matter of state law, which differs from state to state, and nothing here says what any state does.