SUBJECT: Federal and State Health Insurance Continuation Laws
FILE: Health Insurance
DATE: June, 2003
Illinois health care continuation law appears in the Illinois Compiled Statutes, Ch.215/367e, (Group
Insurance for Terminated Employees Act) and 5/367.2, (Spousal Health Insurance Rights Act.)
Employers offering group accident and health insurance are required to offer continuation coverage.
Illinois employers with typically fewer than 20 employees are subject to Illinois law requiring
continuation of group health insurance coverage for both terminated employees, former spouses and
dependents of deceased or divorced employees. Illinois does not exclude small plans from coverage.
Illinois employers with 20 or more employees are subject to both Illinois and Federal health insurance
TMA Group Insurance Trust & COBRA
All member companies of the Trust should be aware that notwithstanding the number of employees in
your company, participants in any MEWA (multiple employer welfare arrangement) like the Trust, are
subject to state and federal legislation including COBRA.
Illinois Continuation of Coverage for Terminated Employees
All group insurance policies and HMO’s must grant the option for continuation coverage to terminated
employees and their dependents in certain circumstances.
Who Gets the Option?
Employers must provide terminated employees who have been continuously covered by a group insurance
plan for at least 3 months prior to termination, the option to continue hospital, surgical and major medical
coverage for 9 months for themselves and their dependents.
- Individuals who are covered by Medicare or
- Individuals who are convicted of or confess to an employment related felony or theft for which the
employer was not responsible
- Individuals who become eligible for some other employer group insurance
Employees must be given written notice of this option at the time of termination or by providing notice of
this option by mail to the employee’s last known address. This notice may be given by the insurance carrier
rather than the employer.
Employees or their dependents must provide written notice to the employer of their election to continue
coverage within 10 days of the later of (1) the date of the termination or (2) the date on which the employee
is given notice of their right to continuation of coverage.
The employee or the dependents must pay the full premium within 30 days of election.
Coverage for Former Spouses and Children
The Spousal Health Insurance Rights Act 215ILC 367.2 provides that if coverage is terminated as a result
of the death, divorce or retirement of a covered employee, the former spouse must be given the option to
elect continuation of coverage for all health insurance coverage such as medical, hospital, dental, vision and
prescription drugs. The former spouse must pay the full premium cost including that portion usually paid by
Who is Eligible?
The former spouse and dependents, who have been covered under the plan for 3 months prior to the
termination of coverage, must be given the option to continue all health insurance coverage.
Request to Continue Coverage
The former spouse must provide written notice to the employer of their election to continue coverage within
30 days of the death, divorce or retirement of the covered employee.
The employer then has 15 days to provide written notice to the insurance company.
The insurance company has 30 days from the date of notification by the former spouse or the employer to
notify the former spouse of their election rights and provide an election form. If the insurance company fails
to make this notification, coverage under the plan would continue, but the premiums would be waived from
the date the former spouse should have been notified until the date notice is provided.
Former Spouse and Dependents
The election form must be returned to the insurance company within 30 days.
When Does Coverage Terminate?
The former spouse may be taken off the employer’s group plan after:
1. Two years- if under age 55
2. When medicare eligible if over 55, when the death, divorce or retirement of covered employee occurs
3. At remarriage
4. Upon obtaining other group insurance
5. Due to non-payment of premium
TMA GROUP INSURANCE TRUST
The Group Insurance Trust (GIT) of the TMA is classified as a multiple employer welfare arrangement
(MEWA). As a MEWA the trust is subject to both federal and state insurance legislation. Therefore
companies in the trust with fewer than 20 employees are still required to offer continuation of coverage
pursuant to Federal Legislation, specifically COBRA (The Consolidated Omnibus Budget Reconciliation
(The Consolidated Omnibus Budget Reconciliation Act, 1985) applies to all companies with 20 or more
employees offering group health plans. The right to elect continuation of health care coverage must be
offered to terminated employees and their dependents on the occurrence of a qualifying event, which gives
rise to the termination of their health care coverage.
Under the new rules for the determination of employee numbers for the application of COBRA, only
common law employees need be counted. Self employed individuals, independent contractors and directors
do not need to be counted even if they are covered by the same plan as the common law employees.
Part time employees may be counted as a fraction of an employee and equal to the number of hours they
work divided by the number of hours they would work as a full time employee, to a maximum of 8 hours a
day, 40 hours a week. The final regulations allow employers to count employees by pay period rather than
on a day-to-day basis. If the same method is used for all employees for the entire year, the number of
employees for the pay period can be applied to each typical business day in that same pay period.
The right to elect COBRA is triggered by one of the following qualifying events:
Employee—18 months coverage available
1. Reduction in number of hours (ie hours result in part-time status, for example, less than 30 hours)
2. Voluntary or Involuntary Termination with the exception of gross misconduct by employee
Spouse or Dependent of Employee—18 months coverage available
1. Reduction in number of hours of covered employee (ie hours result in part-time
status, for example less than 30 hours)
2. Voluntary or Involuntary Termination of employee with the exception of gross misconduct by
Spouse—36 months coverage available
1. Death of spouse
2. Divorce or legal separation from employee spouse
3. Employee spouse becomes entitled to Medicare (Deleted by Revenue Ruling 2004-22)
Dependent Child of Employee—36 months coverage available
1. Death of parent
2. Parent’s Divorce or legal separation from employee spouse
3. Parent becomes entitled to Medicare
4. Loss of dependency status in accordance with plan policy
An employee or spouse and dependents who is a beneficiary under the plan the day before the “ qualifying
Type of Coverage
Coverage must be identical to that which is available to other employees in the same class.
Employer Notice Requirements of Right to Elect Continuation of Coverage
At the commencement of employment. Notice A- to be provided to employees. This notice advises the
employee of their rights to elect continuation of coverage pursuant to COBRA legislation at the end of their
At the end of their employment Notice B-to be provided to employees and eligible dependents advising
them of their right to elect continuation of coverage pursuant to COBRA legislation within 14 days of the
Employer Notice to Insurance Carrier of a Qualifying Event for an Employee
Employee Notice Requirements
1. Employees or dependents must notify the employer when there is a divorce, legal separation or the
dependent has reached their contractual age limit.
2. The employee has 60 days from receipt of Notice B or the occurrence of a qualifying event,
whichever is later, to elect COBRA.
Employer Penalties for Failure to Provide Notice B to Employee
An employer can be assessed fines of $100 per day.
The other more serious consequence is the loss of tax deductibility of the benefit plan.
The employee or dependent pays the total amount of the premium set by the insurance company.
How Frequently May Premium Payments be Made?
The plan may require any frequency, however the payor may elect monthly installments.
Termination of Continuation Coverage
1. The entire employer plan is terminated including the cessation of business for a one-person company
2. The employee or dependent fails to make a timely premium payment
3. The date on which a dependent becomes a covered employee under any other group health plan.
4. The employee or dependent becomes entitled to medicare
5. The date on which the employee’s ex-spouse remarries and becomes covered under a group health
INTERACTION OF STATE AND FEDERAL LAW
Generally if a state law is inconsistent with COBRA, the law that provides better coverage will likely
control. For example, in the case where a spouse is over 55 years of age, Illinois state law extends coverage
if elected up to eligibility for Medicare (age 65), whereas COBRA offers 36 months.
To the extent that the same law applies and requires the same type of continuation coverage as COBRA, a
plan is not required to offer both state coverage and COBRA. For example, if a state law requires 5 years of
coverage and COBRA only requires 3 years, coverage can be limited to continuation of coverage for 5years
not a combination of 5 and 3 years. The coverage periods are not compounded.