Making the switch between State Continuation & COBRA


The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law allowing employees, spouses and dependents in certain situations to temporarily continue their health coverage at group rates. In general, COBRA will apply to employers that have 20 or more employees on more than 50 percent of their “typical business days” in the preceding calendar year.

State continuation (often referred to as mini-COBRA) varies by state. While the majority of states have passed their own laws that require smaller employers to provide COBRA-like continuation of benefits for certain employees and their families, not all states offer a continuation program.  In some states, state continuation coverage rules also apply to larger group insurance policies and add to COBRA protections.  (Note: State continuation coverage requirements generally apply to insured plans only.)

When a small business grows above 20 employees* or an employer’s work force falls below 20 employees during the year, its plans will continue to be subject to whichever option (state continuation or COBRA) was applicable at the beginning of the calendar year until a new calendar year begins. 

i.e.  If an employer exceeds 20 employees during a calendar year, then the group health plan may become subject to COBRA on the following first day of January.

If an employer drops below 20 employees during a calendar year, the employer’s group health plan remains subject to COBRA through the end of that calendar year.

On the first day of January, (regardless of policy renewal date) is when the employer should look at whether it’s still considered a small employer (i.e. fewer than 20 employees on at least 50% of the employer’s “typical business days” during the preceding calendar year) or whether it is subject to COBRA compliance.  It will only be exempt from COBRA compliance if during the preceding calendar year, it normally had fewer than 20 employees. However, despite being exempt, an employer cannot terminate existing COBRA coverage even after the end of the calendar year.

*There is an exception to this rule when a small employer’s growth is due to a stock acquisition.





There are 2 Federal Poverty Level Safe Harbor Amounts Each Year


In 2019, the Federal Poverty Level (FPL) affordability safe harbor employee contribution amount is $99.75/mo and $102.63/month.


Applicable Large Employers (ALE’s) with 50 or more employees are subject to the Affordable Care Act’s (ACA) provisions that require employers provide affordable coverage to employees working 30 or more hours per week. If an ALE does not offer affordable coverage, they may be subject to an employer shared responsibility payment.

Currently, coverage is considered affordable if the employee’s required contribution for employee only coverage on the employer’s lowest-cost plan that offers minimum essential coverage and minimum value, as defined by the ACA does not exceed 9.86% of the employee’s household income. In 2020, the affordability percentage decreases slightly to 9.78%.

If certain conditions are satisfied, an ALE may use one or more of the three affordability safe harbors to determine if it’s offering affordable coverage under the ACA: W-2, Rate of Pay, and Federal Poverty Level (FPL).

An ALE may choose to use one safe harbor for all of its employees or to use different safe harbors for employees in different categories, provided that the categories used are reasonable and the employer uses one safe harbor on a uniform and consistent basis for all employees in a particular category.

Federal Poverty Level:

The federal poverty level safe harbor requires just one calculation. Under this safe harbor, coverage is affordable if the employee’s monthly cost for self-only coverage under the plan does not exceed the federal poverty level for a single individual.  The employer can ignore the employee’s actual hours and wages, which is very helpful when calculating premiums for a workforce with fluctuating schedules and compensation.  But, the federal poverty level safe harbor often results in high cost sharing by the employer and relatively low premiums for employees.

In 2019, the FPL affordability safe harbor employee contribution amount for calendar year plans that an employer can use is $12,140 x 9.86% = $1,197/12 =$99.75/mo.

However, the FPL for 2019 non-calendar year plans may be different.

HHS posts the FPL compensation amount annually by February, so the FPL amount used to calculate the safe harbor in December 2018 for a calendar (1/1/2019) plan year, $12,140 was the only FPL compensation level amount available. Whereas, in February 2019, the FPL compensation level changed to $12,490. 9.86%($12,490)=$1,231.51/12 =$102.63/month.

The IRS recognizes ALE’s need to know well in advance of open enrollment how to set rates, therefore per the final regulations employers are:

“permitted to use the guidelines in effect six months prior to the beginning of the plan year, so as to provide employers with adequate time to establish premium amounts in advance of the plan’s open enrollment period.”

If that six month look-back period reaches into a prior calendar year and two different FPL compensation amounts (and corresponding FPL affordability safe harbor contribution amounts) are available (one from the prior year and the other from the current year), the employer can choose between the two calculations in applying the FPL affordability safe harbor.

Example: A plan that started June 1, 2019 may “look-back” to the FPL safe harbor in effect 6 months prior which was $99.75/mo, or use the FPL safe harbor in effect using the FPL amount released in 2019, $102.63. Whereas a plan starting September 1, 2019, looking back six months would bring up only one possible FPL safe harbor employee contribution amount the employer may use, $102.63.

Note: When applying the look-back approach, the affordability percentage that applies for the year in which the plan year starts must be used. e.g. Any plan starting in 2019, 9.86% is the percentage that applies even when using the FPL amount ($12,140) for 2018 to do the calculation.

So although you will see articles sharing the FPL in 2020 is $101.79/mo ($12,490 x 9.78% = $1,221.52/12), keep in mind this is for calendar year plans and a second FPL amount will be available for non-calendar year plans when the FPL amount is released for 2020.



Health FSA & HSA in the same year?


Q: We just hired a new employee on 7/1 who told us he elected the maximum amount under his previous employer’s health FSA that started in January. We offer a HDHP with an HSA. Is he eligible to participate in an HSA? Or does he need to wait until next year? 

A:  If his health FSA terminated (i.e. he did not elect COBRA), he is eligible to participate in an HSA as of the first of the month after his FSA termination, assuming he’s otherwise eligible for the HSA.

There are 4 basic rules to Qualify for an HSA:

  • Covered under a high deductible health plan (HDHP), on the first day of the month.
  • Have no other health coverage except what is permitted under the regulations
  • Not enrolled in Medicare.
  • Cannot be claimed as a dependent on someone else’s tax return.

So if he meets these 4 requirements, he is eligible to open an HSA on the first of the month following the health FSA termination.

When an employee leaves a job during the course of the year, they are still entitled to the earmarked FSA amount for that year (assuming the eligible expenses incurred prior to termination and claims submitted timely), even if they spend more than has been taken out of their paycheck so far. Furthermore, they could contribute to a new employer’s FSA (or HSA) and have additional pre-tax dollars to spend. (The “FSA loophole” doesn’t work for HSAs because the HSAs are portable and the employee’s account even if they leave.) Likewise, an employee may work for two or more entirely different (i.e. unrelated) entities and contribute the maximum amount to both employer’s FSAs at the same time. The health FSA limit is per employee per employer’s health FSA plan.

So if the health FSA and the HSA don’t overlap, (i.e. the health FSA terminated when the employee left the previous employer) he can contribute to an HSA for the remaining months assuming he’s otherwise eligible (mentioned above). The amount he is eligible to contribute, is calculated in two ways (see Limit On Contributions):

  1. “general monthly contribution rule” – which is one-twelfth of the applicable maximum contribution limit for the year for each month of they year they are HSA eligible. (There are tax implications for “over contributing” when not eligible.)
  2. “last month rule” – which basically states an individual is treated as HSA-eligible for the entire calendar year for purposes of HSA contributions, if they are eligible on the first day of the last month of their tax year (which is Dec. 1 for most). However, to rely on this special rule, the individual must then remain eligible for the HSA through the next 12 months after the last month of their tax year. (i.e. 13 months total).

If he did elect COBRA, assuming no carry-over provision (not common for COBRA participants to be eligible for) or grace period (this is something many COBRA participants are eligible for), or if there is a grace period (or carryover) & he has a zero balance on the last day of the FSA plan year, then he would be eligible for an HSA as of the first day of the month after the health FSA plan year ends (assuming he’s otherwise eligible for the HSA).

Cafeteria Plans Do Not Have to Permit Midyear Election Changes


Under an Internal Revenue Code Section 125 cafeteria plan, employee’s elections must generally be irrevocable until the beginning of the next plan year. In other words, employees are unable to make a change to their pretax elections made when newly hired or open enrollment unless they experience a permitted election change event (e.g. change in status) allowed under IRS rules (26 CFR § 1.125-4) and the event is recognized by the employers cafeteria plan.

Employers do not have to allow any exceptions to the irrevocable rule for pretax elections1.  However, the IRS does allow employers to design their cafeteria plans to permit employees to change their pretax elections prospectively2 when certain conditions are met.

NOTE: Section 125 permitted election changes are regarding pretax deductions to pay for benefits, not the actual enrollment (or disenrollment) in an insurance plan.

But I thought if an employee got married, or had a baby we had to let them enroll in our plan? 

It is true, the Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires group medical plans to permit midyear enrollment due to certain events (marriage, birth, adoption, loss of other group coverage etc.). The HIPAA special enrollment requirement is only for medical, it’s not required for excepted benefits, i.e. stand-alone dental, vision or most FSAs. (29 CFR § 2590.701-6)

NOTE: HIPAA is not a directive regarding how benefits are paid, it only mandates that an employee must be allowed to enroll in the medical plan

HIPAA special enrollment events are a subset of the Section 125 permitted election change events that provide special rights. Therefore, for practical matters, and to avoid requiring the premium to be taken post-tax, at a minimum, employers generally include HIPAA special enrollment events as permissible events allowing for a change to the pretax election, when designing their cafeteria plan3.


1The irrevocable pretax election rules do not apply to health savings accounts (HSAs). Employees may prospectively change (start/stop, increase/decrease) their HSA contribution election at any time during the plan year. An employer must allow for changes at least monthly.

2Under HIPAA special enrollment (birth, adoption or placement for adoption) a retroactive pretax election change may be made. Likewise, if the plan has no waiting period (e.g. employees are eligible for coverage as of the first day of employment), employers may allow new employees to make a retroactive pretax election within 30 days of employment. However, if an employer has a waiting period (e.g. first of the month following date of hire, 30 days etc.) the new employee may only make a prospective election. (i.e. the effective date must be a date after the enrollment form was signed and submitted.)

3HIPAA requires group health plans, to give special enrollment opportunities for HIPAA specific events. Carriers are not required to incorporate all the election changes an employer may allow as permitted, by Treasury Regulations in Section 1.125. Therefore, employers with fully insured coverage, who recognize changes outside of what is required by HIPAA should confirm with their insurance carrier the group insurance contract and permissible cafeteria plan midyear change events are consistent.


“Takes” or “Accepts” Insurance Doesn’t Necessarily Mean In-Network

Although this video is corny, it is spot on and I couldn’t have done a better job writing a blog on a common problem. A provider saying they “take” or “accept” your insurance does not mean they are in-network. Rather it only means they welcome patients with insurance and generally will submit an insurance claim for their services to your health plan but it’s possible they are out-of-network (OON) and are able to balance bill you for the amount insurance doesn’t pay.

Balance billing is when an out-of-network provider attempts to collect the difference between the amount the provider charged for services and the amount the health plan (insurance carrier) was willing to pay.  Whereas when a provider is in-network, they must accept the “contracted rate” agreed upon with the insurance carrier and may not bill you for the difference.  Currently out-of- network providers are not under this same obligation.

The best way to guarantee the provider you are seeing is in-network is to call your health insurance carrier using the number on the back of your insurance card to confirm or most carriers have online tools for you to search for an in-network provider too.

However, in times of an emergency, it’s not realistic for you to previously have researched and figured out if a facility is in-network, nor may you even have the ability to select the emergency room, treating physicians, or ambulance providers.

Likewise, surprise bills can also arise when you receive planned care. For example, if you schedule a surgery at an in-network facility (e.g. a hospital) only to find out later (when the bill arrives) that the anesthesiologist did not not participate in your health plan’s network. (It’s very common for radiologists, anesthesiologists and pathologists to be OON.) In both situations, you were not in a position to choose the provider nor to determine that provider’s insurance network status.

Situations like these are reasons why there is currently a push in Congress to pass “balance billing” laws to alleviate Americans from receiving a surprise bill. Both parties in Congress agree, you should not be surprised by an out-of-network health care bill. There has not however been agreement on the the best approach to address them. It remains to be seen if a bill can still pass before the Senate’s recess in August.


COBRA Participants & Open Enrollment

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COBRA regulations state that COBRA qualified beneficiaries (QBs) are entitled to the same rights under a group health plan as are similarly situated non-COBRA beneficiaries i.e. active participants (§ 54.4980B-5 Q&A-1).

COBRA qualified beneficiary includes:

  • individuals currently enrolled and paying for COBRA
  • individuals in their 60-day election period
  • individuals who have elected, but not yet paid for COBRA

During open enrollment, COBRA qualified beneficiaries have the same rights as active employees. (§ 54.4980B–5 Q&A–4c)  For instance, they may:

  1. Add coverage they didn’t previously have while on COBRA (e.g., enroll in dental and vision coverage at OE even if previously covered only by medical) § 54.4980B-5, Q/A-4
  2. Drop coverage
  3. Add dependents (as non-qualified beneficiaries with no independent COBRA rights), even if they were not covered at the time of the qualifying event § 54.4980B-5, Q/A-5
  4. Drop dependents
  5. Switch to another benefit package within the same plan (e.g., change medical plan option from PPO to HMO).

To be compliant, during open enrollment it’s important that employers remember to provide COBRA QBs everything they would need to make an informed coverage decision and election as if they were active employees.  The open enrollment materials must be provided to QBs in a manner that is “reasonably expected to ensure receipt”. Generally, this would mean 1st class mail to the last known home address. A Certificate of Mailing is also a best practice. 

Who Is Responsible for Offering COBRA Open Enrollment? 

COBRA open enrollment is always the responsibility of the employer.  Even if the employer has a third party administrator (TPA) handling COBRA notices, ultimately it is still the employer’s responsibility to communicate with their TPA on who will be handling the COBRA open enrollment. This is typically not included as part of the regular TPA COBRA administrative services, but many will assist for an additional fee.

What if an enrolled participant doesn’t send back their OE election?

There are different schools of thought on the answer to this question.

Per COBRA statutes, there are only 6 ways COBRA may terminate before max. coverage period ends: (§ 54.4980B–7 Q/A-1)

  1. Failure to pay on time
  2. Early termination when employer ceases to provide any group health plan
  3. Early termination because of coverage under other group health plan coverage
  4. Early termination because of Medicare entitlement
  5. Early termination when QB in disability extension found not disabled
  6. Early termination for cause (e.g. fraudulent claims)

There is nothing in the regulations that says failure to re-elect during OE is cause for termination. So, it’s my understanding, if the plan(s) the participant is on didn’t change, then their coverage should roll over into the new plan year and they should be billed the new plan year’s premiums. If the plans did change, they should be enrolled in the plan most comparable (i.e. what replaced the coverage they had).  If they fail to send in payment, they’ll term for non-payment accordingly.

However, that being said, at least one court has held that the plan may terminate COBRA coverage for a QB who fails to re-enroll after they are provided OE materials and are notified that failure to re-enroll will lead to a loss of coverage. This is because, §54.4980B-7, Q/A-1(b), provides that “a group health plan can terminate for cause the coverage of a qualified beneficiary receiving COBRA continuation coverage on the same basis that the plan terminates for cause the coverage of similarly situated nonCOBRA beneficiaries.”  So some interpret this, (as did the the court ruling) to mean, because COBRA participants have the same rights (and responsibilities) during open enrollment as similarly situated employees, if an employer requires active enrollment by employees during open enrollment, they can require active enrollment by COBRA participants too.

In my experience, it’s best to keep QBs enrolled on their current plans (or the the plans most comparable to what they currently have) unless an employer is provided other guidance from their legal counsel.

NOTE: Don’t forget about your employees on FMLA. They too have the same open enrollment rights for the health plan as active employees


Dallas & San Antonio Paid Sick Leave Ordinance Scheduled to Take Effect 8/1/2019



Texas does not have a statewide paid sick leave; however, paid sick leave ordinances in Dallas and San Antonio are scheduled to take effect on August 1, 2019.

NOTE: Austin’s paid sick leave ordinance, which was supposed to go into effect this past October, has been held unconstitutional by the Third Court of Appeals in Austin. The Third Court of Appeals decided that it violated the Texas Constitution because it was pre-empted by the Texas Minimum Wage Act. Given the similarities among the ordinances, the Texas Supreme Court’s decision on the Austin ordinance may impact the San Antonio and Dallas ordinances.

The 86th Texas Legislative Session failed to pass Senate Bill 2487, a seemingly well-supported bill to preempt all such ordinances from taking effect and being enforced. Without a Special Session, there is no other procedural method to revive the bill, and the Texas Legislature will not have an opportunity to address the sick leave preemption issue until the next session in January 2021.

High Level Key Points – for employers who have employees working in Dallas or San Antonio:

Effective dates:

  • August 1, 2019, for employers having more than five employees.
  • August 1, 2021 for employers with less than 5 employees.

Who is entitled?

  • Any employee (including part-time) who performed at least 80 hours of work for pay within the city in a year, including work performed through a temporary or employment agency.
  • Where the employee worked and for how many hours are the determining factors, regardless of whether the employer has a location within the city limits of Dallas or San Antonio.

What are qualified employees entitled to?

  • Employers with more than 15 employees – one hour of earned paid sick time for every 30 hours the employee worked in the city up to a yearly cap of 64 hours per employee per year.
  • Employers with less than 15 employees – one hour of earned paid sick time for every 30 hours the employee worked in the city for up to 48 hours per employee per year.

Notice requirements:

  • The employer must provide an employee at least a monthly statement showing the amount of the employee’s available earned paid sick time.
  • If an employer has an employee handbook, the ordinances require that the employer provide a statement of rights and remedies in the handbook.
  • The ordinances also require the display of a sign in a conspicuous place where other notices to employees are customarily posted.

What actions should an employer take?

Employers who already have a paid sick leave policy in effect that is the same as or more generous than these ordinances, (e.g. company’s policy already provides at least 64 hours (8 days) of paid time off to all employees (or 48 hours if  less than 15 employees) the Dallas and San Antonio ordinances both state that they do not require an employer to provide additional earned paid sick time. However, employers should consider developing procedures that will comply with the additional ordinance requirements (e.g. notice).

An employer who has more than five employees performing work in San Antonio and/or Dallas and does not currently have a paid sick leave policy that is compliant with these ordinances, should watch for continuing developments and start thinking about the necessary changes they need to make to their policies and practices in order to comply with these new rules by August 1.


  1. City of Austin Sick Time Ordinance
  2. City Of San Antonio Paid Sick Leave
  3. Dallas Paid Sick Leave Ordinance