Health plans -- Conversion coverage

[Guest Ray Goetz]

Federal law requires an employer's group health plan to provide "COBRA" continuation coverage, for certain persons who would otherwise lose their coverage. In addition, most states require the insurers issuing the underlying group policy to allow persons who are losing their group coverage (and who have used up their COBRA) to "covert" to an individual policy.

Here are my questions:

1. Would these state "conversion" rules ever apply to a self-insured group health plan?

2. Do employers with self-insured health plans ever chose, as a design matter, to make conversion policies available, even though they are not required?

3. If so, why? Wouldn't it be easier for the employer to just provide extended continuation coverage, beyond what it required by COBRA?

[Linda]

1. Self-insured plans are not required to offer conversion policies. State laws don’t apply -- ERISA preemption.

2. Yes, some self-insured plans do choose to offer conversion policies.

3. I’m guessing an employer might want the conversion policy to be available to help a former employee in a truly desperate situation (although, post-HIPAA, there should be some other “desperation” options). I think an employer typically has to pay something to the insurer to make conversion coverage available, the coverage is not very good, and very few employees use it. However, extending COBRA would be expensive because of the negative experience on COBRA beneficiaries. I suppose after the minimum period, an employer could raise the rate.

[Guest Ray Goetz]

I have a follow-up question. Setting aside the issue of any required "conversion coverage" for self-funded plans (I am satisfied that there is none), I have a question about the general state law conversion rules.

Here is the question. I recently heard that a few states actually PROHIBIT insurers from providing conversion coverage. Is this true?

It does not seem right, to me. I am aware that there are a few states that do not REQUIRE coversion coverage, but it would seem odd that a state would say that the insurer (and the employer) could not decide to gratuitously provide some conversion coverage. Similarly, I am aware that the courts in some states have ruled (properly) that the state's coversion rules cannot be applied to the employer, as opposed to the insurer, but that is again different.

Any thoughts?

[Guest murphyd]

My office is headquarted in New York and we have satellites in 21 states. We offer conversion benefits to all states. Maybe it has to do with our situs as in New York.