Employer Funding of Individual Health Insurance – The Rules Are Changing

by Louise on July 19, 2011

Earlier this year, I wrote about HRAs and Colorado law, looking closely at the Colorado Division of Insurance’s stance regarding the use of HRA funds to pay individual health insurance premiums.  Long story short, in 2009 the DOI had basically said that HRA funds could not be used to purchase individual health insurance, because the policies would have to conform to the provisions of Article 16, which applies to group health insurance (individual policies don’t have the same mandates, coverage, or underwriting standards as group policies, so they would not be able to conform to the provisions of Article 16).  But then at the end of last year, the DOI revisited the HRA question, and published a final agency order regarding the use of HRA funds to purchase individual health insurance.   They reversed their earlier position, and said that HRAs could be used to purchase individual health insurance.  They included a restriction on the use of HRA funds to purchase CoverColorado policies, as they wanted to discourage employers from shifting sick employees off of a group health insurance plan and onto the state subsidized high risk pool coverage.

This seemed to settle the matter for the most part, but now it’s gotten a bit stickier again.

We recently received a notice from Humana about a new state-mandated page that will be added to their individual health insurance policy, and I’m sure we’ll be getting a similar notification from the other carriers shortly.  In a nutshell, the new application page asks whether or not an employer (with 50 or fewer employees) will be paying (directly or via reimbursement) for any portion of the health insurance policy, including by means of an HRA.  If the answer is yes, then the applicant has to state whether or not the employer has had a group policy in place in the past twelve months.  If the answer to that question is yes, then the applicant will be ineligible for coverage under Colorado law.

Huh?  I knew that the DOI had sorted out the HRA issue several months ago, and I didn’t remember anything about a requirement that no group plan have been in place for 12 months before the HRA funds could be used to purchase individual health insurance.  I called the DOI, but all they could direct me to was that same final agency order, and they acknowledged that it doesn’t say anything about a 12 month waiting period between coverage under a group plan and eligibility to use HRA funds for an individual policy.

Then I remembered Senate Bill 19.  It was signed into law in March, and was meant to give employers more freedom to seek out less expensive ways of covering at least some of the cost of their employees’ health insurance premiums.  SB19 allows employers to reimburse their employees for health insurance premiums, either by wage adjustments or through an HRA, as long as the employer has not had a group policy in place in the previous twelve months.  This is a major change from the previous law, which forbid any type of wage adjustment to reimburse employees for individual health insurance premiums.  But it seems that it might have actually made things more restrictive when it comes to HRAs.

I’ve read everything I can find regarding the use of HRA funds for individual health insurance, and I wasn’t aware of any restriction that prevented an employer from dropping a group plan and going directly to a HRA (if anyone is aware of restrictions of this nature that existed prior to SB19, please leave a comment with details).  SB19 appears to relax the restrictions on employers with regards to funding individual health insurance policies, but when it comes to HRAs, that does not appear to be the case.  Because of the new law, employers can now use wage adjustments to reimburse employees for individual policies (as long as they haven’t had a group policy in the past twelve months), which wasn’t allowed at all in the past.  But the use of HRAs to fund individual policies can now only be done if the employer hasn’t had a group policy in the past twelve months, and that restriction wasn’t found in the DOI final agency order regarding HRAs.

It appears that SB19 has both relaxed and tightened the rules, depending on how you look at it.

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Related posts:

  1. Using HRA Funds To Purchase Individual Health Insurance
  2. Biased Language In Employer Health Insurance Survey
  3. Colorado Bill Would Allow Employers To Reimburse Employee Premiums
  4. The Future Of Employer Based Health Insurance
  • http://insureblog.blogspot.com/ H G Stern, LUTCF, CBC

    Health Wonk Review: Olio Edition now online, and your post’s in it:

    http://insureblog.blogspot.com/2011/11/health-wonk-review-olio-edition.html

    Please let your readers know.

    And a friendly reminder to newbies and regulars alike – while we haven’t made it mandatory to give a link back, it’s the way that carnivals work best. If your submitted post has been included in an HWR issue, please remember to post about it on your blog because it helps us all.

    Thanks!

  • http://www.facebook.com/0x0100001001000111 Bruce Griffith

    I testified on behalf of SB19 in both the House and Senate. The restriction you are seeing is a result of SB19. It was the compromise that allowed SB19 to pass. And, just for the record, at least part of the reason that DORA issued their final agency order to withdraw Notice O-11-064 was the stir created by the events that led to passage of SB19. SB19 is not onerous, it is a compromise. The 12 month restriction only applies to businesses withdrawing from the group market. SB19 is silent on an individual’s health insurance status, only whether the corporate payer behind the HRA dropped a group plan. Moral: If you’re a business, don’t drop your group plan. You’re lucky to be able to get one in the first place.

    • http://www.healthinsurancecolorado.net/blog1/ Louise

      I understand that the 12 month restriction was a compromise, and that if employers are able to keep their group plan in place, that’s the best scenario for their employees. But to say “if you’re a business, don’t drop your group plan. You’re lucky to be able to get one in the first place” is a bit unfair. What if the business in question simply cannot afford to keep its group plan? Very small businesses (say 10 or fewer employees) are particularly hard hit by health insurance premiums that rise dramatically year after year. If they eventually are unable to continue to afford coverage, dropping their plan becomes a matter of necessity rather than a choice. Because of the restriction in SB19, that employer is then forbidden from helping its employees pay for individual health insurance for the following 12 months.

      There’s more than one way to look at this, and unfortunately, the economic realities of being a small business don’t always allow for group health insurance benefits.

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