The Who, What, Why, and When of Federal COBRA and Minnesota State Continuation

By Marlo Peterson

Administering Minnesota state continuation laws and federal COBRA are likely not an employer’s favorite task. Some outsource it, some manage it in-house, and others hope no former employees elect coverage. But both programs — Minnesota state continuation (a state-mandated plan) and COBRA (a federal program) — offer employees, including certain police officers and firefighters, continued health insurance after leaving your organization or experiencing a qualifying event.

While federal and state options have similarities, they also differ in key ways. Employers are responsible for ensuring that eligible employees are offered either the state or federal plan that provides them with the most generous coverage. Failing to provide proper notices and guidance can lead to penalties.

If this seems complicated, the following breakdown clarifies key points.

COBRA versus Minnesota state continuation

Both federal COBRA and Minnesota continuation allow individuals (qualified beneficiaries) to continue benefits after a qualifying event, including:

• Termination of employment (voluntary or involuntary).
• Divorce/separation.
• Death of an employee.
• Dependent losing eligibility.
• A covered employee becoming covered under Medicare.
• A secondary event, such as a disability determination.

While the qualifying events are the same, health coverage differs:

• Termination of employment: Under federal COBRA, each qualified beneficiary, such as a dependent child under a family plan, can individually elect coverage. In contrast, Minnesota state continuation does not offer independent elections and requires that the former employee elect coverage for all dependents.
• Divorce: COBRA offers 36 months of coverage, whereas Minnesota continuation allows coverage until another plan is obtained.
• Death of an employee: COBRA allows 36 months of coverage with a 30-day grace period for payment. Minnesota state continuation offers beneficiaries 90 days for payment and indefinite coverage until new insurance is secured.
• Disability: COBRA allows for up to 29 months of coverage, with the last 11 months costing 150% of the premium. It also requires a Social Security Administration (SSA) determination within 60 days of the qualifying event. Minnesota continuation allows for coverage indefinitely at 100% of the premium and does not require an SSA determination, but the beneficiary must be determined to be totally disabled while employed.
• Life insurance: COBRA does not offer life insurance continuation, but Minnesota state continuation does.
• Field specific: Unique requirements apply to police officers and firefighters.

Compliance and penalties

To ensure that your plan complies with federal COBRA, employers must meet the following Technical and Miscellaneous Revenue Act of 1988 (TAMRA) requirements:

• Training: Proof that COBRA administrators have received proper training.
• Documentation: Written instructions for COBRA administration.
• Professional guidance: The plan is updated and designed based on professional advice.
• Independent oversight: The plan is monitored by an independent auditor.

Adhering to these criteria is essential to demonstrate compliance during an audit. Federal COBRA and Minnesota state continuation laws differ yet run concurrently. This creates administrative challenges. While municipalities are not subject to Employee Retirement Income Security Act of 1974 (ERISA) penalties, qualified beneficiaries can bring a lawsuit to recover COBRA coverage under provisions of the Public Health Service Act (PHSA). For reference, courts have based rulings on penalties for private-sector employers, which can be $100 per day per beneficiary ($200 per family).

Additional requirements for municipalities

Minnesota state law mandates that municipalities and governmental entities offer continuation of health coverage to eligible former employees, under Minnesota Statutes, section 471.61, subdivision 2. Key provisions include:

• Eligibility: Applies to former employees (excluding volunteer firefighters) who either receive or qualify for public pension through the Minnesota Public Employees Retirement Association.
• Prior notification: Employers must inform retirees of coverage options and deadlines before termination.
• Indefinite coverage: Retirees and dependents must be allowed to continue group coverage indefinitely, but cannot drop individual coverage while keeping dependent coverage.
• Premiums: Under COBRA, employers can charge up to 102% of the cost of coverage, including a 2% administrative fee, but are not required to charge the full 2%. Under Minnesota continuation employers may only charge 100% of the cost of coverage.

It is important to remember that this benefit is not COBRA, though COBRA notice requirements must still be followed. Although it is generally advantageous for former employees to receive benefits under this statute, COBRA requirements must still be satisfied. Both a COBRA notice and a notification under this statute must be provided to the departing employee or beneficiary.

Navigating complexities

The interplay between federal COBRA, Minnesota continuation, and municipal requirements create a complex regulatory landscape. Employers must compare the options and offer the most beneficial coverage. If meeting TAMRA criteria seems challenging, consider updating internal practices or outsourcing administration to a trusted third-party administrator.

Marlo Peterson is a consumer directed benefits consultant for the Minnesota Healthcare Consortium (mnhc.gov). The Minnesota Healthcare Consortium is a member of the League’s Business Leadership Council (lmg.org/sponsors).