Can a small employer choose who is eligible for group health insurance?
October 21, 2013 9:59 AM Subscribe
Under the new Affordable Health Care Act (Obamacare), can a small employer (under 25 FTE) choose who is eligible for a group plan based on merit or as an incentive? Basically, not have a set guideline as to who is eligible and who isn't?
That sounds like a dangerous path to tread down. Assuming this is for a company you run, I'd speak with an attorney familiar with employment law before you do anything like this.
posted by dfriedman at 10:29 AM on October 21, 2013
posted by dfriedman at 10:29 AM on October 21, 2013
Generally, yes you do need to offer coverage to all employees working 30+ hrs per week to be eligible for the SHOP plans (see here). This doesn't include seasonal or temporary workers. But, eligible doesn't mean "cover the total cost of." You could possibly have all employees eligible but offer to cover a percentage of the cost of the policy as the incentive/merit portion, and still qualify for a SHOP plan. Check with an attorney in your jurisdiction or the SBA in your area. And make sure you don't accidentally screw over your employees by both not paying any of their coverage and disqualifying them from subsidy eligibility.
posted by melissasaurus at 10:40 AM on October 21, 2013
posted by melissasaurus at 10:40 AM on October 21, 2013
There are few actual mandated requirements for small employers with less than 50 employees under the ACA. They can freely choose to offer or not offer insurance, just as they do now.
However, there are some big optional incentives in the ACA for those employers, but only if they provide insurance for all employees.
There is the SHOP program mention above by melissasaurus. This is an insurance exchange much like the exchange for individuals but for small groups. Currently small group insurance is relatively expensive, but by pooling all of those small groups in the SHOP exchange, they can get lower rates.
There are also tax credit subsidies available to small employers that provide health insurance -- up to 50% of costs are paid by the ACA.
Both of these programs are available to small businesses only if they agree to cover all employees. Most small businesses would be foolish not to take advantage of these optional provisions of the ACA because they are essentially government subsidized increases to employee compensation and employers must compete with other employers for employees.
If you are not covered by insurance from your employer, you are eligible to buy your own insurance on the individual insurance exchange, with possible subsidies, depending on your household income.
posted by JackFlash at 11:03 AM on October 21, 2013
However, there are some big optional incentives in the ACA for those employers, but only if they provide insurance for all employees.
There is the SHOP program mention above by melissasaurus. This is an insurance exchange much like the exchange for individuals but for small groups. Currently small group insurance is relatively expensive, but by pooling all of those small groups in the SHOP exchange, they can get lower rates.
There are also tax credit subsidies available to small employers that provide health insurance -- up to 50% of costs are paid by the ACA.
Both of these programs are available to small businesses only if they agree to cover all employees. Most small businesses would be foolish not to take advantage of these optional provisions of the ACA because they are essentially government subsidized increases to employee compensation and employers must compete with other employers for employees.
If you are not covered by insurance from your employer, you are eligible to buy your own insurance on the individual insurance exchange, with possible subsidies, depending on your household income.
posted by JackFlash at 11:03 AM on October 21, 2013
Outside of anything related to the ACA, most small employers would be subject to ERISA, and ERISA plans must be administered in accordance with a plan document. Eligibility based on merit or some other subjective criteria (i.e. not having any discernable criteria) would almost certainly violate the fiduciary provisions of ERISA because it would be very difficult to avoid administering the plan in an "arbitrary and capricious" manner.
posted by Pax at 11:16 AM on October 21, 2013 [2 favorites]
posted by Pax at 11:16 AM on October 21, 2013 [2 favorites]
Some insurers will ask to "laser out" some high risk employees from group plans or else the premiums will be significantly higher for the group in general. The employer might be able to do this, but at the same time they may well have to pay a penalty.
Merit based? I'd think the company will again have to pay a penalty for every worker not covered.
I work for a non profit medium sized company that is struggling to find a way to cover everyone it needs to cover next year under the ACA (it literally will cost them an additional $500,000 a year) , it may end up being cheaper for them to drop everyone pay the penalty and give people the $ to purchase silver plans on the exchange.
posted by edgeways at 11:21 AM on October 21, 2013
Merit based? I'd think the company will again have to pay a penalty for every worker not covered.
I work for a non profit medium sized company that is struggling to find a way to cover everyone it needs to cover next year under the ACA (it literally will cost them an additional $500,000 a year) , it may end up being cheaper for them to drop everyone pay the penalty and give people the $ to purchase silver plans on the exchange.
posted by edgeways at 11:21 AM on October 21, 2013
As Pax says, this isn't an ACA issue- it's a benefits issue and there are VERY strict rules about who you are allowed to exclude from receiving benefits. I'd be very surprised if the ACA made any of these rules change but I could be mistaken.
posted by small_ruminant at 11:51 AM on October 21, 2013
posted by small_ruminant at 11:51 AM on October 21, 2013
there are VERY strict rules about who you are allowed to exclude from receiving benefits.
Those rules only apply to discrimination based on the employee's health status. There is nothing prohibiting a small employer from choosing which employees to give health benefits based on other criteria, say, hours worked per week, years on the job, management vs non-management, etc.
posted by JackFlash at 12:13 PM on October 21, 2013
Those rules only apply to discrimination based on the employee's health status. There is nothing prohibiting a small employer from choosing which employees to give health benefits based on other criteria, say, hours worked per week, years on the job, management vs non-management, etc.
posted by JackFlash at 12:13 PM on October 21, 2013
There is nothing prohibiting a small employer from choosing which employees to give health benefits based on other criteria, say, hours worked per week, years on the job, management vs non-management, etc.
Well, while plans have a good deal of discretion in setting eligibility rules, IRS nondiscrimination rules generally prevent a plan drom discriminating in favor of highly compensated individuals, so management vs. non-management can be tricky. Also, there's ADEA and Medicare Secondary Payer rules.
Also, many states/insurance carriers have minumum participation rules for small groups.
But, again, the main thing under ERISA fiduciary rules is that you can't have subjective criteria. It would be very difficult to make the case for a merit-based eligibility design without running into trouble.
posted by Pax at 12:49 PM on October 21, 2013
Well, while plans have a good deal of discretion in setting eligibility rules, IRS nondiscrimination rules generally prevent a plan drom discriminating in favor of highly compensated individuals, so management vs. non-management can be tricky. Also, there's ADEA and Medicare Secondary Payer rules.
Also, many states/insurance carriers have minumum participation rules for small groups.
But, again, the main thing under ERISA fiduciary rules is that you can't have subjective criteria. It would be very difficult to make the case for a merit-based eligibility design without running into trouble.
posted by Pax at 12:49 PM on October 21, 2013
Pax, you are talking primarily about ERISA rules regarding 401(k) and other retirement plans, for example rules regarding highly compensated employees. Those same rules do not apply to health benefits, unless health benefits are part of a retirement package.
ERISA rules pertaining to health benefits are HIPPA, which restricts discrimination based on health status and COBRA, which has to do with portability of health benefits. The IRS rules apply to 401(k) plans. The ADEA pertains to age discrimination. Fiduciary responsibilities have to do with management of pensions and 401(k)s or retirement health benefits.
There is nothing preventing small business owners from choosing who to cover with insurance as long as it is not based on health status and is not part of a retirement benefits plan.
posted by JackFlash at 1:13 PM on October 21, 2013
ERISA rules pertaining to health benefits are HIPPA, which restricts discrimination based on health status and COBRA, which has to do with portability of health benefits. The IRS rules apply to 401(k) plans. The ADEA pertains to age discrimination. Fiduciary responsibilities have to do with management of pensions and 401(k)s or retirement health benefits.
There is nothing preventing small business owners from choosing who to cover with insurance as long as it is not based on health status and is not part of a retirement benefits plan.
posted by JackFlash at 1:13 PM on October 21, 2013
JackFlash, I disagree. ERISA fiduciary rules aboslutely do apply to welfare plans.
I was pointing out ADEA (age) and Medicare (age/Medicare entitlement) just for purposes of showing that it's not just ERISA (or ERISA parts 6 and 7, as you point out - which also includes WHCRA, MHPAEA, and Newborns') that apply to health and welfare plans.
Also, section 105(h) and section 125 of the IRC (nondiscrimination rules for highly compensated individuals for self-funded and cafeteria plans, respectively) and section 2716 of PPACA (nondiscrimination for insured plans) also absolutely apply to health plans.
posted by Pax at 1:21 PM on October 21, 2013
I was pointing out ADEA (age) and Medicare (age/Medicare entitlement) just for purposes of showing that it's not just ERISA (or ERISA parts 6 and 7, as you point out - which also includes WHCRA, MHPAEA, and Newborns') that apply to health and welfare plans.
Also, section 105(h) and section 125 of the IRC (nondiscrimination rules for highly compensated individuals for self-funded and cafeteria plans, respectively) and section 2716 of PPACA (nondiscrimination for insured plans) also absolutely apply to health plans.
posted by Pax at 1:21 PM on October 21, 2013
Also, COBRA provides for health coverage continuation, HIPAA deals with nondiscrimination on health status and portability (restricting preexisting condition exclusions, allowing special enrollment for certain events).
posted by Pax at 1:26 PM on October 21, 2013
posted by Pax at 1:26 PM on October 21, 2013
Response by poster: These are some great answers but keep in mind that there are only 5 people in this company and my boss has always offered insurance at the year or two point in lieu of a raise. here it sounds like we can't do that anymore, but then other answers seem to say it is not regulated for our size.
posted by Snackpants at 1:27 PM on October 21, 2013
posted by Snackpants at 1:27 PM on October 21, 2013
If your employer offers a choice between health coverage (pre-tax premium reduction) and taxable cash, it likely has set up a cafeteria plan. I can't say whether what any particular employer is doing is permissible without all the facts, but cafeteria plans are the norm, and are permissible - even where the taxable cash operates as an extra opt-out bonus, which is less common than just offering your base compensation.
ERISA and the IRC (including cafeteria plan rules) do apply to employers with 5 employees.
posted by Pax at 1:35 PM on October 21, 2013
ERISA and the IRC (including cafeteria plan rules) do apply to employers with 5 employees.
posted by Pax at 1:35 PM on October 21, 2013
This thread is closed to new comments.
posted by Ruthless Bunny at 10:05 AM on October 21, 2013