Small Employer Health Insurance
Small employers don’t have to offer health insurance to their employees, but employers that do must make it equally available to all employees working 30 hours or more per week (not on a temporary or seasonal basis) and their dependents.
Texas insurance law defines a small employer as a business with two to 50 employees, regardless of how much they work.
In general, insurance companies require at least 75 percent of a small employer’s eligible employees to participate in the health plan. (An eligible employee is a full-time employee who usually works at least 30 hours a week.) Companies must always round down to the nearest whole number when calculating the number of participating eligible employees. For example, a business with five employees would achieve 75 percent participation if three eligible employees participate. Seventy-five percent of five is 3.75, and 3.75 rounded down is three.
Insurance companies that offer small-employer coverage must make it available to any employer who applies year round. However, if the employer doesn’t meet the minimum participation requirements, availability may be limited to the federal open enrollment period running from November 15 through December 15 of each year.
Types of Plans
The Patient Protection and Affordable Care Act (PPACA) requires all individual and small-employer group plans to cover a standardized package of services. These services are known as essential health benefits.
The essential health benefits include the following items and services:
ambulatory patient services (outpatient care you get without being admitted to a hospital)
- emergency services
- hospitalization (including surgery)
- maternity and newborn care
- mental health and substance use disorder services, including behavioral health treatment (including counseling and psychotherapy)
- prescription drugs
- rehabilitative and habilitative services and devices (services and devices to help people with injuries, disabilities, or chronic conditions gain or recover mental and physical skills)
- laboratory services
- preventive and wellness services and chronic disease management pediatric services, including oral and vision care.
The essential health benefits are based on a typical plan bought by small employers in Texas. This means that all of the benefits requirements for small-employer plans under Texas law were adopted as part of the federal essential health benefits standard. Learn more about what Texas law requires at www.tdi.texas.gov/hmo/hmmanben.html.
Grandfathered plans (those that an employer bought before March 23, 2010) aren’t required to contain the essential health benefits, but they do need to comply with Texas laws. Also, some types of insurance, such as indemnity policies, aren’t subject to the ACA and don’t count as minimum essential coverage for tax purposes.
Employers must give new employees at least 31 days from their start date to enroll in a health plan. After this time, employees may be required to wait up to one year for the next open enrollment period to join. Insurance companies must offer a 31-day open enrollment period annually.
Employers may require newly eligible employees to wait up to 90 days before being eligible for benefits. However, the insurance company may not charge a premium during this period.
Beginning in January 2014, insurance companies won’t be able to impose coverage limits, exclusions, or waiting periods for employees with preexisting conditions who had a gap in coverage.
State regulations and a federal law called COBRA (Consolidated Omnibus Budget Reconciliation Act) allow employees to maintain benefits for a time after leaving a job. COBRA doesn’t apply to all small employers, but state continuation requirements do. Employers are required to tell employees about their rights to continue coverage. Former employees who choose to continue their coverage through COBRA or state continuation must pay the full cost of the plan. Employers aren’t required to contribute toward their premiums for former employees, even if they previously paid a share. Ask your carrier about your responsibilities regarding continuation notices.
Paying for Coverage
The law doesn’t require employers to contribute toward health benefit plan premiums. Many insurance companies, however, require employers to pay at least 50 percent of their employees’ plan premiums. Employers may choose to pay a higher percentage than the company requires.
Employers are usually not required to contribute toward the cost of dependent coverage.
Premiums may increase at each renewal term because of rising health care costs. However, Texas law caps small-employer rate increases due to health factors – such as the amount of employee claims experience – at 15 percent per year. State law also protects businesses who buy small-employer health insurance by prohibiting insurance companies from discontinuing coverage without a reason.
Businesses with 25 or fewer full-time equivalent employees that pay at least 50 percent of premiums and pay average annual wages below $50,000 may be eligible for a tax credit of up to 50 percent (35 percent for nonprofits) of the premiums the business pays if it buys coverage through the federal small-business health options program, called the Small Business Health Options Program (SHOP). For more information, visit www.healthcare.gov/will-i-qualify-for-small-business-health-care-tax-credits.
How Insurers Calculate Small-Employer Plan Premiums
Insurance companies base the amount employers pay for insurance on the specific benefits package and cost-sharing levels chosen by the employer. The health status of employees won’t impact rates. Insurance companies will consider the following factors:
- Age of employees. Older people usually have more expensive and more frequent health-related claims. Generally, the older your workforce, the more your plan will cost. However, federal law prevents insurers from charging more than three times more for older employees than they charge for younger employees.
- Tobacco use. Federal law allows health plans to charge tobacco users up to 50 percent more. Texas law requires that rating factors related to health status be spread across the employer group. A group with more tobacco users will pay higher rates than a group with fewer tobacco users.
- Geographic area. Health care costs vary by region because of differences in the cost of living and the number of providers in the area. Most plans use either the county or ZIP code of the employer’s business address to base rates.
Federal Health Care Reform Requirements
Small businesses with fewer than 50 full-time plus full-time equivalent employees won’t face a penalty if they don’t provide health insurance to their employees.
Federal law defines a full-time employee as one who works at least 30 hours during a typical week. The law counts each 120 hours worked by part-time employees in a month as one full-time equivalent employee.
Consider a company that employs 30 full-time employees who work at least 120 hours each per month and 24 part-time workers who average 80 hours each per month.
To convert the part-time employees’ hours to full-time equivalent employees, multiply the number of part-time workers by the average number of hours they work each month: 24 x 80 = 1,920. Then divide the total number of hours worked by 120: 1,920/120 = 16. To get the total number of full-time equivalent employees, add this number to the number of full-time employees: 30 + 16 = 46. Thus, the employer in this example has 46 full-time equivalent employees and qualifies as a small employer under the law.
For more information, visit HealthCare.gov or call 1-800-318-2596.
Buying Coverage Through the Insurance Marketplace
The federal government will operate the insurance marketplace in Texas.
Businesses with 50 or fewer full-time plus full-time equivalent employees may buy coverage through the SHOP. In 2016, employers with up to 100 full-time and full-time equivalent employees will be able to buy SHOP coverage. An employer that has SHOP coverage and hires more employees than the threshold will be able to continue coverage through SHOP.
For more information about the insurance marketplace, visit HealthCare.gov or call 1-800-706-7893
Shopping for Coverage
Because premiums, deductibles, copayments, and coinsurance levels can vary from plan to plan, it pays to shop around. The following tips can help you find the best value for your money:
- Understand coverages when comparing plans and rates. Plans with higher deductibles, copayments, and employee share of coinsurance generally will have lower premiums. Keep in mind that your employees will also have to pay more out of pocket when they access services or benefits.
- Consider factors other than cost, such as a company’s financial strength and complaint record. You can learn a company’s financial rating, as determined by an independent rating organization, and complaint record by calling the Texas Department of Insurance Consumer Help Line at 1-800-252-3439 or 512-463-5515 in Austin or by visiting our website at www.tdi.texas.gov.
- Buy only from licensed insurance companies and HMOs. Selling unlicensed coverage is illegal in Texas. If you buy from an unlicensed company, your employees’ claims could go unpaid and you could be held liable for the full amount of your employees’ claims and losses. You can learn whether a company is licensed by calling the Consumer Help Line or by viewing the company profiles on our website.
- Understand that employee health coverage is different from workers’ compensation insurance, which covers only job-related injuries and illnesses. Although workers’ compensation insurance is not required in Texas, it protects an employer from high damage awards in the case of workplace accidents. Providing regular health coverage to employees isn’t a legal alternative to providing workers’ compensation insurance. Read TDI’s Workers’ Compensation Insurance publication for more information.
For More Information or Assistance
For answers to general insurance questions, for information about filing an insurance-related complaint, or to report suspected insurance fraud, call the Consumer Help Line at 1-800-252-3439 or 512-463-6515 in Austin between 8 a.m. and 5 p.m., Central time, Monday-Friday, or visit our website at www.tdi.texas.gov.
For printed copies of consumer publications, call the 24-hour Publications Order Line at 1-800-599-SHOP (7467) or 512-305-7211 in Austin.
To report suspected arson or suspicious activity involving fires, call the State Fire Marshal’s 24-hour Arson Hotline at 1-877-4FIRE45 (434-7345).
The information in this publication is current as of the revision date. Changes in laws and agency administrative rules made after the revision date may affect the content. View current information on our website. TDI distributes this publication for educational purposes only. This publication is not an endorsement by TDI of any service, product, or company.
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