Employer Reimbursement Of Premiums Causing Applicants To Be Declined

For the last several months, individual health insurance applications in Colorado have included a new set of questions to determine whether an applicant’s premiums are going to be paid or reimbursed by an employer.

I’m using an Anthem Blue Cross Blue Shield application for the specific wording, but the questions are standard and state-mandated on all individual applications in Colorado now, so it should be nearly the same regardless of the carrier.

The first question asks:  “Will an employer of fifty (50) or fewer eligible employees be paying for or reimbursing any applicant through wage adjustment, a health reimbursement arrangement or otherwise for any portion of the premium on the policy being applied for?

If the answer is NO, the applicant can skip the rest of the section about employer reimbursement and continue on with the application.

But if the answer is YES, there are other questions.  The second one asks:  “Did the employer have a small group health benefit plan providing coverage to any employee in the twelve months prior to the date of this application?

If the answer to that question is NO, the applicant can skip the rest of the section and continue with the application.  But if the answer is YES, there is a notification that says “the applicant cannot be issued an individual policy with the premiums, or portion thereof, paid or reimbursed by the employer.  Although the policy being applied for cannot be funded by an employer, the applicant may still be eligible for coverage paid by himself or herself.  If the applicant wishes to apply for an individual policy of insurance where the applicant will pay the premiums, the applicant should continue completing the rest of the application and answer question 3.

Question 3 reads: “Do you agree to apply for an individual policy of insurance and pay all of the premiums without the financial assistance of your employer?

We’ve recently had some clients whose applications have been declined by Colorado health insurance carriers because they were applying for an individual policy, checked YES with regards to their employer funding all or part of the premiums, and also checked YES to the question about their employer offering a group policy within the past 12 months.

In one case, the client misunderstood the question and thought that since he was using money he earned at his job to pay for his health insurance, that he should answer YES to the first question.  In fact, he should have answered NO, but confusion over the wording on health insurance applications is quite common (particularly the legally-required language on sections like the HIPAA eligibility, Business Group of One eligibility, and now the employer funding of premiums questionnaire).

In the other cases, the clients answered truthfully and ended up being declined for coverage.  They can opt to pay for their own policies and get approved for coverage, but they may be relying on the employer reimbursement in order to be able to afford the premiums.

I understand the logic behind the one year rule that was written into Senate Bill 19.  Although lawmakers are allowing small businesses to provide some money towards individual health insurance premiums, they would prefer that this option be used by small businesses that would otherwise not provide any health insurance benefits at all.  Group health insurance – which, unlike individual policies, is guaranteed issue – is the way that regulators prefer to see employees get coverage.  So they want to discourage small businesses from dropping their existing group health insurance plan and switching to an HRA or some other means of reimbursing employees for individual policies.  Such a move would likely save the employer money, but would leave unhealthy employees with few options for coverage (possibly only CoverColorado, the state high risk pool).

And that all makes sense.  Having employers wait 12 months after dropping a group plan before they can begin reimbursing employees for health insurance premiums is likely to cause more employers to keep their group plan in place.  But what about the employers who just can’t afford to continue their group plans?  We know that as healthcare costs have risen over the last decade, the percentage of small businesses that offer group health insurance has declined.  As premiums continue to rise each year, additional businesses will simply be unable to continue their group health insurance plans.  They might be able to come up with a smaller amount of money that they could give to employees in the form of health insurance reimbursement.  But SB19 prevents that option for a year.

I know that the law was written with good intentions, but we’re noticing that it’s the employees – the applicants who are trying to get individual health insurance policies – who get the short end of the stick.  It’s the employees who end up getting their health insurance application declined.  It’s the employees who end up having to pay for their own premiums in order to obtain coverage, even if they thought that they were going to be able to rely on some level of reimbursement from their employer.

About Louise Norris

Louise Norris has been writing about health insurance and healthcare reform since 2006. In addition to the Colorado Health Insurance Insider, she also writes for healthinsurance.org, medicareresources.org, Verywell, Spark by ADP, and Boost by ADP, and Gusto. Follow on twitter and facebook.

Comments

  1. Jim Sugden says

    The two major considerations behind the twelve month wating period in SB 19 were stabilization of the small group risk pool the protection of CoverColorado.  Thanks to a group of oportunistic brokers, CoverColorado was receiving an inordinate number of applications from employers who were dropping their group coverage, requiring employees to apply for fully underwritten individual coverage and dumping large numbers of declined employees on CoverColorado.

    I’m all for creativity but, this maneuver was killling both the small group market and our state’s high risk pool.  The twelve month wating period wasn’t a perfect solution but without it SB 19 would have opened the floodgates to a wholesale exodus from small group by most health participants and the rapid financial destruction of CoverColorado.

    If PPACA holds, we’ll see a radical transformation of the health insurance markets by  2014.  Even without PPACA, the economic realities of health care and health insurance will demanding comprehensive solutions that benefit all Coloradans, not just fixes that benefit one subgroup.  Let’s not destroy the exisitng market mechanisms before we invent their replacement.

    • Jim, you make a great point, and I agree that something had to be done to prevent the collapse of both the small group market and the high risk pool system.  I know that some brokers were aggressively pushing employers to drop their small group plans and switch to an HRA model instead – which leaves sick employees with CoverColorado as the only viable option and definitely threatens to overwhelm CoverColorado.

      The problem we see with the 12 month waiting period is from the perspective of employees who are applying for a new policy and getting declined because of actions that their employer took (which are largely out of the employees’ control).  It seems that the employees are the ones being penalized if they aren’t able to be approved for coverage without agreeing that they will fund the policy entirely on their own. 

      A couple of possible alternatives (which would admittedly add to the administrative burden involved with the whole process): 

      There could be a process by which employers have to pay an additional fee to CoverColorado for any of their employees who end up on CoverColorado within 12 months of the employer dropping a group plan, if the employer is reimbursing individual health insurance premiums in any way.  The fee could be designed to be substantial enough to discourage employer from dropping their group plan if they have employees who wouldn’t be able to qualify for individual coverage.

      Or there could be a waiver-style exception made for employers who can demonstrate that the cost of group premiums had made the coverage unaffordable for the business.  Say, if the premiums had risen to a point that exceeded x% of the business income.  That might help to differentiate between employers who are just looking to save money (but would continue to offer group coverage if the reimbursement option were not available) and those who would drop their coverage and offer no health insurance at all to their employees if the reimbursement option were not available.

  2. I’m a one person s-corp with 100% ownership in Colorado. As an individual, I purchased a high deductible healthcare plan (and also setup an HSA). Does this law mean my s-corp cannot reimburse the premiums I pay? It’s a pretty common thing – but you are saying it’s not legal in Colorado?

    If the company could in fact reimburse me, I understand because I’m a > 2% shareholder, the reimbursement (as well as the company funding my HSA) would show in box 1 of wages but would be excluded from 3 and 5 which is social security and medicare wages. Then I on my personal tax return would deduct that income under healthcare premiums.

    So is this a Colorado thing that is messing things up or am I not relevant to the law you speak of and if so why?

    Thank you.

    • Bob,

      What you’re describing should be fine, although you’ll want to check with the IRS or a tax professional before proceeding. But >2% shareholders are not the same as employees when it comes to the legality of reimbursing health insurance premiums. Since 2008, >2% shareholders have been able to have the corporation reimburse health insurance premiums, have the amount included in W2 wages, and then deduct it on the 1040.

      But last fall, it appeared that the ACA would be changing all of that, retroactive to January 2014. Then in February 2015, the IRS published Notice 2015-17 ( http://www.irs.gov/pub/irs-drop/n-15-17.pdf ) which states that >2% shareholders are exempt from the ACA’s ban on employer reimbursement of premiums for at least 2014 and 2015, and possibly beyond – more regulations are coming soon. So for now, you should be fine – but stay tuned to the IRS updates pertaining to >2% shareholders. Here’s an article I wrote with more details for self-employed people: http://www.healthinsurance.org/obamacare/self-employed-health-insurance-deduction/

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