California Extends Health Coverage Continuation Rights

On September 22, 2002, California Assembly Bill 1401 (AB 1401) was signed into law. This legislation requires a health care service plan and a health insurer to offer specified individuals who begin receiving COBRA coverage on or after January 1, 2003, and who exhaust their continuation coverage under COBRA where their maximum coverage would have been less than 36 months, an opportunity to extend the term of their coverage to a total of 36 months.

Specifically, in relation to Health Maintenance Organizations, the regulations stipulate:

"A heath care service plan shall offer an enrollee who has exhausted continuation coverage under COBRA the opportunity to continue coverage for up to 36 months from the date the enrollee's continuation coverage began, if the enrollee is entitled to less than 36 months of continuation coverage under COBRA."

In relation to Indemnity Plans, AB 1401 states the following:

"A health insurer that provides coverage under a group benefit plan to an employer shall offer an insured who has exhausted continuation coverage under COBRA the opportunity to continue coverage for up to 36 months from the date the insured's continuation coverage began if the insured is entitled to less than 36 months of continuation coverage under COBRA."

What this means is that health care service plans and group hospital surgical medical insurance policies issued, amended or renewed in California on or after September 3, 2003, must allow individuals who have exhausted their 18 month COBRA continuation period (or 29 months, in the case of disability), to continue on the group policy for up to an additional 18 months (or an additional 7 months in the case of disability).

Health Care Service Plan/Health Insurer Responsibilities
Under AB 1401, health care service plans and health insurers are responsible for including the required continuation clause in their policies and are responsible for the collection of the required premiums.

Section 1366.26 and Section 10128.56 state:

"A qualified beneficiary electing continuation coverage shall pay to the health care service plan (disability insurer) on or before the due date of each payment but not more frequently than on a monthly basis, not more than 110 percent of the applicable rate charged to a similarly situated individual under the group benefit plan being continued under the group contract. In the case of a qualified beneficiary who is determined to be disabled pursuant to title II or Title XVI of the United States Social Security Act, the qualified beneficiary shall be required to pay to the health care service (disability insurer) an amount no grater than 150 percent of the of the group rate after the first 18 months of continuation coverage."

Health care service plans and health insurers are allowed to outsource the billing and collection of premiums responsibility.

Employer Responsibilities
Employers are responsible for notifying the COBRA qualified beneficiaries of their rights under AB 1401 and for directing them to the appropriate health care service plan or health insurer. AB 1401 states:

"Notification of the coverage available under this section shall be included in the pending termination of COBRA coverage that is required to be provided to COBRA beneficiaries."

ProBusiness will include the AB 1401 required language in a timely manner by modifying the "End of COBRA Continuation Eligibility" notice sent to our COBRA clients' participants 120 days prior to exhaustion of COBRA, to include the AB 1401 required language.

COBRA Participant Responsibilities
In order to exercise the coverage continuation rights afforded under AB 1401, an election to purchase the extended coverage must be made in writing to the carrier, no later than 30 calendar days prior to the end of the 18-month COBRA continuation period.

Cost of Continuation Coverage
Under California law, specifically Section 1366.26 (HMO plans) and Section 10128.56 the premium for such extended coverage may not exceed "110 percent of the applicable rate charged for a covered employee or, in case of dependent coverage, not more than 110 percent of the applicable rate charged to a similarly situated individual under the group benefit plan being continued under the group contract." Those individuals deemed to be disabled by the Social Security Administration may be charged up to 150% of the applicable rate.

Maximum Period of Coverage
AB 1401 extends the continuation coverage to a total of 36 months from the date the original COBRA coverage commences. For individuals who qualify for extended COBRA (to 29 months) due to Social Security Administration disability determination, the maximum period of coverage will also be 36 months from the date of the original COBRA commencement for themselves and covered family members who have exhausted COBRA.

AB 1401 Quick Facts:

• AB 1401 shall apply to individuals who begin receiving COBRA coverage on or after January 1, 2003.
• COBRA participant must exhaust initial 18-month or 29-month in case of disability COBRA coverage period. Consequently, no individual shall be covered under the AB 1401 continuation coverage until July 1, 2004.
• Pertains only to insured plans, not self-insured plans.
• Pertains only to medical plans. Not stand alone dental or vision plans.
• Extension of coverage only needs to be offered if original COBRA coverage was less than 36 months. Spouses and dependent children who originally are offered 36 months of COBRA coverage are not eligible for the extension under AB 1401.
• Premiums cannot exceed 110% of applicable rate (except in relation to disability where it is up to 150%).
• Maximum coverage period under AB 1401 is 36 months from the original COBRA commencement date.

For more information, consult the AB 1401 document.

California Enacts Paid Family Leave Program

On September 23, 2002, Governor Gray Davis signed California Senate Bill 1661 (SB 1661) which makes California the first state in the union to establish a comprehensive leave program for workers. This new legislation allows workers to take six weeks off to care for a newborn, a newly adopted child or ill family member. Workers are eligible to begin taking leaves beginning July 1, 2004.

The new Paid Family Leave Program will be funded entirely by employee payroll deductions and will average around $27.00 a year ranging up to $70.00 per year for workers making in excess of $72,000 annually.

Employees under the program are eligible to collect up to 55 percent of their wages with a maximum payment of $728.00 per week. No more than six weeks of family leave benefits shall be paid within any 12-month period. Furthermore, as a condition of the employee's initial receipt of paid family leave, an employer may require an employee to take up to two weeks of earned but unused vacation leave prior to the employee's initial receipt of paid family leave benefits.

Return to Top

Social Security Wage Base Increases to $87,000 for 2003

On October 18, 2002, the Social Security Administration announced that the social security wage base for calendar year 2003 will rise to $87,000. This represents an increase of $2,100 from the 2002 limit of $84,900. The FICA tax rate remains at 6.20%. The Medicare tax rate of 1.45% will continue to be accessed against all covered wages. The maximum social security tax to be paid by employers (per employee) and by each employee will be $5,394.00, which is an increase of $130.20 over the 2002 maximum of $5,263.80.

Return to Top

Qualified Parking Maximum Reimbursement Amount Increased

EFFECTIVE JANUARY 1, 2003

The IRS has announced, via REV. PROC. 2002-70, that the maximum monthly qualified parking benefit amount that can be reimbursed under a Section 132(f) plan has been increased from the 2002 limit of $185.00 to $190.00 for expenses incurred on or after January 1, 2003. The aggregate fringe benefit exclusion amount for transportation in a commuter highway vehicle and any transit pass remains at the current level of $100.00 per month. The following link contains the official IRS communication regarding this matter. Please see "Qualified Transportation Fringe" on page 11.

http://www.irs.gov/pub/irs-drop/rp-02-70.pdf

Return to Top

2003 Plan Limits Released

The Internal Revenue Service (IRS) has released the revised employee maximum plan contribution limits, along with the new FICA rate, to be effective on January 1, 2003. Although ProBusiness does not administer many of the plans noted below, many of our clients find this information useful.

Return to Top

IRS Decreases Standard Business Mileage Rate

The standard business mileage rate for transportation expenses paid or incurred beginning January 1, 2003 shall be 36 cents per mile. This represents a ½ cent decrease from the current 2002 level of 36½ cents per mile. This mileage rate can be utilized by employers to compute the deductible cost of operating a passenger car for business purpose as well as determining an employee's imputed income for the personal use of certain company-owned or leased vehicles. The 2003 standard mileage rate of 14 cents for operating a passenger car for charitable purposes remains unchanged from 2002.

Return to Top

Washington State Minimum Wage to Increase

Effective January 1, 2003, the state minimum wage in Washington will increase from the current $6.90 per hour to $7.01 per hour. The minimum wage in Washington is recalculated each calendar year as a result of a 1998 initiative, which requires an annual cost-of-living adjustment in the minimum wage based on changes in the federal Consumer Price Index for urban wage earners and clerical workers (CPI-W).

Return to Top

IRS Releases Form 940-EZ for 2002 Filings

The Internal Revenue Service (IRS) has released Form 940-EZ (Employer's Annual Federal Unemployment (FUTA) Tax Return) for 2002.

Form 940 Background
Employers covered by FUTA must report their liability annually on Form 940. However, an employer may use the simplified Form 940-EZ if the following requirements are met:

• State unemployment taxes were paid to only one state;
• State unemployment taxes were paid by the January 1, 2003 Form 940 due date; and
• All the employer's FUTA taxable wages were also taxable for state unemployment taxes.
  

Return to Top

Please contact ProBusiness for further information at:
20000 North Creek Parkway, Suite 200, Bothell, WA 98011
Phone: (425) 415-4000 Fax: (425) 417-4795
e-mail: bsa@probusiness.com

(ProBusiness does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter should not be construed as legal advice. Your legal counsel should be consulted on all specific fact situations.)

Return to Top