Small Employer Health Insurance
Texas law allows insurance companies to sell small employer health insurance plans with a variety of features and benefits. The variety of options can make choosing a health plan challenging, but it can also mean that you’ll find a plan that closely meets your and your employees’ needs.
Texas insurance law defines a small employer as a business with two to 50 eligible employees. Eligible employees must meet all of the following requirements:
- work 30 hours or more per week
- not be a temporary, part-time, or seasonal employee
- not be covered by another group health plan.
The number of eligible employees – not total employees – determines whether a business is a small employer. For example, if your business has 60 total employees, it could still qualify if six of the workers are part-time and four have coverage through another source, such as a spouse’s health plan. Sole proprietors, partners, and independent contractors are also eligible employees if the business offers them health care coverage. Business owners count toward the eligible employee total.
If you offer a health plan to your employees, you must make it equally available to all of your eligible employees and their dependents.
At least 75 percent of a small employer’s eligible employees must participate in the health plan. Companies must always round down when calculating the number of participating eligible employees. For example, a five-employee group 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.
If a business only has two eligible employees, the law requires both employees to participate. A husband and wife working in a business count as two separate employees. Neither of the employees is eligible for coverage as a dependent of the other.
Types of Plans
Insurance companies sell two types of small employer plans. Plans with minimum features and coverages required by state law are called state-mandated plans. Plans that don’t offer all the required features are called consumer choice plans. But consumer choice plans must provide the following four state-mandated coverages:
- phenylketonuria treatment, if prescription drugs are covered
- complications of pregnancy
- minimum hospital stay after childbirth (federally mandated)
- reconstruction surgery following a mastectomy (federally mandated).
Although consumer choice plans are sometimes called standard plans, the coverages provided are not standardized. Each company’s consumer choice plan may be different, and a company may offer several different consumer choice plans. Your premium will generally be lower for consumer choice plans.
Consumer choice plans may be different depending on if an insurance company or an HMO sells the plan. For example, HMO consumer choice plans must pay for 20 outpatient mental health visits per enrollee per year, and must include basic health care services, such as inpatient, outpatient, and preventive services. Consumer choice plans sold by insurance companies don’t have to include these coverages.
Insurance companies and HMOs must tell small employers which state-mandated coverages aren’t in their plans. The policy or evidence of coverage must also include additional disclosures.
The following table compares state-mandated and consumer choice plan coverages.
Note: Benefits labeled “Yes” must be included as part of the plan. Benefits labeled “No” are not required. Benefits labeled “Offer” must be offered, but you may decline any or all of them.
|Benefits||State-Mandated Plans||Consumer Choice Plans|
|Autism spectrum disorder||Yes||Yes||No||No|
|Acquired brain injury||Yes||Yes||No||No|
|Chemical dependency, benefits and treatment facility||Yes||Yes||No||No|
|HIV, AIDS, or related illness||Yes||Yes||No||No|
|Home health care||Offer||No||No||No|
|Mandatory benefit standards-basic health care services||No||Yes||No||Yes|
|Mental health: psychiatric day and treatment facility||Offer||Offer||No||No|
|Mental illness: crisis stabilization and residential treatment for children and adolescents||Yes||Yes||No||No|
|Mental illness: serious mental illness||Offer||Offer||Offer||Offer|
|Osteoporosis, detection and preventions||Yes||No||No||No|
|Prescription drugs: amino acid-based formulas||Yes||No||No||No|
|Prescription drugs: contraceptive drugs and devices||Yes||No||No||No|
|Prescription drugs: oral anticancer medications||Yes||No||No||No|
|Prescription drugs: PKU||Yes||Yes||Yes||Yes|
|Speech and hearing||Offer||Offer||No||No|
|Women's health: human papillomavirus and cervical cancer testing||Yes||Yes||Yes||Yes|
|Women's health: in vitro fertilization||Offer||Offer||No||No|
|Women's health: mammography||Yes||Yes||Yes||Yes|
|Women's health: mastectomy, reconstructive surgery||Yes||Yes||Yes||Yes|
|Women's health: pregnancy||No||No||No||No|
|Women's health: complications of pregnancy||Yes||Yes||Yes||Yes|
|Women's health: maternity minimum stay (if maternity is covered)||Yes||Yes||Yes||Yes|
Other Required Benefit
State law requires certain health plans – including small employer health plans – to pay up to $200 every five years for cardiovascular disease screening tests. Men older than 45 and younger than 76 and women older than 55 and younger than 76 who are diabetic or at risk of developing coronary heart disease are eligible for the coverage.
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.
You may require employees who enroll in a plan to wait up to 90 days before being eligible for benefits. The company may not charge you or the employee a premium during this period.
Preexisting Conditions and Waiting Periods
Companies may require participants to wait a certain amount of time before receiving coverage for preexisting medical conditions. Plans generally have different rules for preexisting conditions. Plans using the open-enrollment requirement can’t require new members to wait more than one year before covering their preexisting conditions.
New enrollees who were continuously covered for 12 months by a previous plan also don’t have a preexisting condition waiting period, as long as no more than 63 days passed between the ending date of the old coverage and the effective date of the new coverage. This means the new plan would immediately cover the employee’s preexisting conditions.
Employees with fewer than 12 months of coverage under a previous plan receive credit toward the preexisting condition waiting period on a month-for-month basis. For the previous coverage to be considered creditable, it must have been in effect in the 12 months prior to the start of the new coverage. For example, an employee who was covered for three months at any time in the prior year would receive three months’ credit and would only have to wait nine months before preexisting conditions are covered.
Insurance companies can’t refuse to provide health coverage for your employees because of illnesses or preexisting conditions. Companies are also prohibited from using health-related factors – such as employees’ prior claims experience or conditions caused by violent family situations – to decide whether to provide coverage.
State regulations and a federal law called COBRA (Consolidated Omnibus Budget Reconciliation Act) allow employees to maintain benefits for a while after leaving a job. It’s your legal responsibility 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. You aren’t required to contribute toward their premiums, even if you previously paid a share. Ask your carrier about your responsibilities regarding COBRA.
Paying for Coverage
The law doesn’t require employers to contribute toward health benefit plan premiums. But many companies require employers to pay at least 50 percent of the plan’s premiums. Employers may choose to pay a higher percentage than the company requires.
Insurance companies must offer dependent coverage to all eligible employees. Employers are usually not required to contribute toward the cost of dependent coverage. If the employer doesn’t contribute, employees pay all or some of the premium costs themselves.
Premiums may increase at each renewal term because of rising health care costs and employee claims experience. Claims experience is the number of people the plan covers and their medical and prescription history.
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 and allowing small employers to form cooperatives to negotiate lower insurance rates.
How Small Employer Plan Premiums are Calculated
Rates for small employer plans aren’t only decided by benefits and deductibles. Insurance companies may also use health status-related factors and certain objective case characteristics to set the premium for a small employer group. Companies may use some or all of these five case characteristics:
- 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.
- Gender. At younger ages, males usually have lower medical costs than females, particularly during childbearing years. The difference gets smaller with age until medical costs for males is higher than for females between 50 and 60 years old. Expect higher premiums if you have a younger workforce with more females than males or one that is older and has more males than females .
- Number of plan participants. Insurance companies base rates on group size for two reasons. As size increases, administrative costs per person decreases. Also, smaller groups tend to buy health coverage based on the needs of participants, increasing the likelihood of claims for the benefits provided. As group size increases, this custom-tailoring becomes more difficult and premiums tend to decrease. However, the highest group size factor may not exceed the lowest group size factor by more than 20 percent.
- Industry. Some industries have higher medical claims costs than others because of working conditions and the number of accidents. High employee turnover in some industries can also cause higher administrative costs for the company. However, the highest industry factor a company charges may not exceed the lowest factor by more than 15 percent.
- Geographic area. Health care costs vary by region due to differences in 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.
The rating process for a small-employer group can be described as a two-step process.
- A company determines a premium rate based on case characteristics and plan design, but without regard to health status-related factors. This produces the baseline price of the policy.
- The company may then adjust the rate to reflect health status-related factors of the group. This adjustment must apply uniformly to all members of the group and may not exceed 67 percent of the baseline price of the policy.
Federal Health Reform
The Patient Protection and Affordable Care Act – the federal health care reform law– requires insurance companies to provide additional coverages and strengthens consumer protections.
There are no health care requirements or penalties for business with fewer than 50 employees.
Businesses with 25 or fewer full-time employees that pay for at least 50 percent of premiums and pay average annual wages below $50,000 may be eligible for a tax credit of up to 35 percent (25 percent for nonprofits) of the premiums the business pays. The credits increase in 2014.
For more information and regular updates, visit TDI’s Federal Health Care Reform Resource Page at www.tdi.texas.gov/consumer/cpmhealthcare.html.
Shopping for Coverage
Because premiums, deductibles, copayments, and coinsurance levels can vary from plan to plan, it pays to shop around. The following useful tips can help you find the best deal for your money:
- Understand coverages when comparing plans and rates. If you chose a consumer choice plan over a state-mandated plan, the company or agent is required to explain in writing which coverages you don’t have.
- 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 463-5515 in Austin.
- Look into purchasing cooperatives. These are groups of employers with similar health care needs who join together to negotiate discounted rates for shared plans. For a list of registered purchasing cooperatives in Texas, call the Consumer Help Line or visit our website.
- 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 you from high damage awards in the case of workplace accidents. Providing regular health coverage to your employees isn’t a legal alternative to providing workers’ compensation insurance. Read TDI’s Workers’ Compensation Insurance publication for more information.
Note: Use www.HealthCare.gov to learn rates for small employer health insurance in your area.
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 1-800-252-3439 or 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 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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