Navigating “Mini-COBRA” or “COBRA-like” (state continuation of coverage) Requirements: A New Era for ERISA Compliance 

August 2025 

Deanna Sizemore, Associate Director, Benefits Compliance 

For employer plan sponsors, understanding and complying with various benefit laws is a constant challenge. The focus is often on federal mandates like the Employee Retirement Income Security Act (“ERISA”) and the Consolidated Omnibus Budget Reconciliation Act (“COBRA”). However, a recent court decision—Owens v. Blue Shield of California, et al.—has cast a new light on how state-level health care continuation of coverage requirements, often referred to as “mini-COBRA” or “COBRA-like” coverage requirements intersect with federal ERISA obligations. 

The Court’s decision delivers a pivotal message: state health care continuation of coverage requirements, typically viewed as separate and distinct from federal COBRA, may in fact be subject to ERISA’s fiduciary duties and enforcement provisions. 

The Court, in partially denying the defendant’s motion to dismiss, concluded that when an employer’s group health plan provides state-level continuation of coverage, even if it is mandated by underlying state law, such coverage is still part of an “employee welfare benefit plan” as defined by ERISA. This means the plan administrator (often the employer) and other plan-level fiduciaries have the same ERISA responsibilities—such as acting prudently and solely in the interest of participants and beneficiaries, as well as adherence to plan documents—respecting state-level continuation of coverage requirements, just as they currently do with respect to their primary group health plan. 

The ruling challenges the long-standing perception that state-level continuation of coverage requirements operate entirely outside of ERISA’s purview.  

Employer Action Items 

Note that the following Employer Action Items apply to small employers exempt from Federal COBRA and/or subject to state-level continuation of coverage requirements¹. 

• Small-employer exemption: Determine if the COBRA small-employer exemption applies: 
  • The exemption applies to most private-sector employers with fewer than twenty employees including full-time equivalents on at least 50% of typical business days in the preceding calendar year and churches, state, and local government plans.  
  • If an employer is unsure if COBRA’s small-employer exemption applies, it would be prudent to seek legal advice to make the determination.  
  • Note that Cal-COBRA also applies to employer plans that are subject to federal COBRA and can extend an 18-month federal maximum COBRA coverage period by an additional 18-months under state law.  

• ERISA fiduciary duties apply to state continuation coverage: 
  • Review internal processes for managing state continuation coverage. Are the individuals responsible for administering these benefits aware of their ERISA fiduciary obligations? Provide training if necessary.  

• Review plan documents and SPDs: 
  • Collaborate with legal counsel and The Baldwin Group to review and update plan documents and Summary Plan Descriptions (“SPDs”). Ensure SPDs clearly describe the availability, terms, and conditions of state-level continuation of coverage, including claims and appeal procedures, consistent with ERISA’s disclosure requirements. 

• Ensure robust claims and appeal procedures: 
  • Verify the plan’s claims administrator is applying ERISA-compliant claims and appeals procedures and practices respecting state-level continuation of coverage issues. If a plan uses a third-party administrator (“TPA”), ensure service agreements explicitly require ERISA-related compliance respecting all continuation of coverage administration.  
    • Note that denials of state continuation coverage or related claims must now adhere to ERISA’s stringent claims and appeal procedures. This means providing timely notifications, clearly articulating reasons for denial, and providing for a full and fair review process. 

• Understand ERISA enforcement risks: 
  • Participants enrolled in state-level continuation of coverage policies now have clear grounds to bring suit under ERISA, to the extent benefits are denied, or individual coverage rights are violated. Proactively address potential issues by ensuring consistent and compliant administration. Document all decisions and communications related to state-level continuation of coverage. 

• Assess the impact on self-funded vs. fully insured plans: 
  • Consult with The Baldwin Group and legal counsel to understand the nuances for the group health plan’s specific structure. State laws may vary depending on the incorporation of ERISA standards and requirements, largely dependent upon whether the plan is fully insured or self-funded.  
    • Note that respecting fully insured plans, the insurer often directly administers the state continuation benefit.  
    • Also note that respecting self-funded plans, these programs are generally not subject to state-level continuation of coverage requirements, but it is important to confirm this with the plan’s TPA, as well as (and to the extent applicable) making sure the TPA contract clearly outlines any responsibilities for ERISA compliance regarding state-level continuation of coverage.  

• Ongoing monitoring and due diligence: 
  • Stay informed with respect to developments related to COBRA and ERISA. This ruling may spur further litigation or necessitate the publication of novel regulatory guidance. 

States with state continuation laws as of April 2025: 

Summary 

In Owens v. Blue Shield of California, et al., the core dispute between the parties to the litigation involved a participant who was enrolled in state-level health care continuation of coverage, as provided by Blue Shield of California, and stemming from an employer’s group health plan. The specifics of the claim centered on a retroactive cancellation of coverage and a denial of benefits under such state-level continuation of coverage policy. 

The critical legal question was whether, and to what extent, the underlying participant was authorized to bring suit under ERISA, alleging their denial of benefits, as received through the state-level continuation of coverage policy, was improper. Blue Shield argued that because the coverage was mandated by state law, it fell outside ERISA’s scope. 

However, the Court disagreed. The Court reasoned that the state-level continuation of coverage, despite being required under state law requirements, was nevertheless provided consistent with the requirements of the employer’s group health plan—an ERISA-covered benefit plan or program. The plan itself, as an “employee welfare benefit plan,” includes all of the benefits that it provides, notwithstanding whether such benefits are voluntarily offered or otherwise mandated consistent with the requirements of state law. The Court emphasized that ERISA’s broad definition of an “employee welfare benefit plan” encompasses any plan, fund, or program established or maintained by an employer for the purpose of providing medical benefits to its participants or their beneficiaries. Since the state-level continuation of coverage requirements was an integral part of the employer’s overall benefit offering, it was therefore subject to ERISA. 

This decision clarifies that the source of the benefit (here, via state-level mandate) does not remove it from ERISA’s umbrella, to the extent such benefit is administered part-and-parcel of an ERISA-governed plan. 

The Court’s ruling, largely denying defendant’s motion to dismiss, is a significant reminder that federal and state employee benefits laws are not always neatly compartmentalized. By asserting that ERISA’s obligations extend to state-level health care continuation of coverage, as provided through an ERISA plan, the Court has reinforced the broad reach of ERISA, as well as reinforcement of the comprehensive and complex responsibilities of ERISA plan fiduciaries. 

For employers, this is a call to action. Now is the time to re-evaluate the effects of state-level continuation of coverage requirements relative to the administration, documentation, and communication of employer sponsored health plans. Consistent with the Court’s recent ruling, employers should proactively address these issues, so that they may mitigate compliance-related risks, all the while, protecting their benefit plans and by continuing to provide these valuable benefits to their workforce with confidence and clarity. 

Additional Information and Resources 

• Owens v. Blue Shield of California, 2025 WL 870355 (N.D. Cal. 2025) 

• Understanding COBRA Rights and Responsibilities 
• Understanding the ERISA Framework