Arizona Employers Face New State Continuation Requirements

Beginning January 1, 2019, Arizona employers not subject to federal COBRA requirements, and with an average of 1–20 employees during the prior calendar year, will be required to offer new state continuation coverage.

State continuation laws protect employees who lose their group health insurance due to specific qualifying events. In those cases, employers that are subject to the laws must offer temporary coverage equal to what was lost.

With the passing of Legislation S.B. 1217 in April 2018, Arizona became the 43rd state plus the District of Columbia to require state continuation coverage, leaving only Alabama, Alaska, Idaho, Indiana, Michigan, Montana, Nevada, and Puerto Rico without some form of requirements.

Who qualifies for state continuation coverage?

The new Arizona continuation law effectively mirrors COBRA requirements. An employee qualifies for state continuation coverage if they were enrolled in their employer’s group health plan for at least three months before a qualifying event. Coverage also applies to their spouse and any qualified dependents if they were enrolled in the plan at the time of the qualifying event.

The state continuation coverage must be equal to the health coverage provided by the employer before the event.

What counts as a qualifying event?

There are seven specific events that may qualify an employee, their spouse, and their dependents for coverage, as outlined in the Arizona continuation law. These include:

1. Voluntary or involuntary termination of employment, except in cases of gross misconduct
2. A reduction of hours that ends the employee’s eligibility for health insurance
3. Divorce or separation
4. Death of employee
5. Employee becomes eligible for Medicare
6. Dependent is no longer eligible for coverage under the employee’s plan
7. Retiree or the spouse or dependent child of the retiree loses coverage within one year before or after the employer begins a Title 11 bankruptcy proceeding

What are my responsibilities as an employer?

If you’re an employer subject to the Arizona law, you must notify your employee of their eligibility for state continuation coverage by writing within 30 days of the qualifying event. Postmarks within 44 days of the event are allowed under the law. The employee then has 60 days after the date of the communication or notice to elect to receive continuation coverage.

When elected, continuation coverage must be identical to the employee’s health coverage before the qualifying event. 

How long must I provide coverage?

State continuation coverage continues for 18 months after the start date, but it may be cut short in cases where:

• The employee doesn’t pay their premium + surcharge/administrative fee 
• The employee or dependent becomes eligible for Medicare or Medicaid 
• The employer no longer offers coverage to all employees 
• A covered dependent would otherwise lose coverage under the plan 

Extensions may also be provided in certain circumstances:

• An employee may request an 11-month extension for qualified dependents with a disability.
• The employer may provide an 18-month extension to a dependent if any of the qualifying events listed from 3–6 above occur during continuation coverage.

Could my business be penalized for non-compliance?

Unlike COBRA, where the U.S. Department of Labor can fine employers $110 a day for a delinquent notice, there is no stated penalty for non-compliance with Arizona state continuation.

How can I make state continuation easier to manage?

Companies that specialize in the administration of state continuation coverage and COBRA can help you set up a new program and monitor the law for changes that could affect your business. Connecting your program to your payroll and group health insurance can also help simplify state continuation for your business. See the many ways we help Arizona businesses manage state continuation and COBRA, keep up with state employment laws and regulations, and manage HR, payroll, and benefits.

Visit Paychex WORX for updates on state continuation laws, COBRA, and more regulations that may affect your business.