The 2011 Colorado legislative session is now underway, and Senate Bill 19 will be particularly interesting to watch. Since 1994, Colorado has had a law that bans employers from reimbursing employees for individual health insurance premiums. If any portion of the premiums for such plans are paid or reimbursed by the employer, the Colorado Division of Insurance considers the employer to have created a small group health insurance plan, and the plan must adhere to small group regulations (this impacts things like underwriting, and also has tax implications for the employer).
The creation of Health Reimbursement Arrangements (HRAs) by the federal government created a lot of confusion in regards to the law in Colorado, since one of the qualified expenses that HRA funds can be used for is “amounts paid for health insurance premiums.” But the Colorado Division of Insurance clarified their position (using interpretation of existing law) in 2009, noting that “…health benefit plans purchased utilizing a health reimbursement arrangement (HRA) are subject to the provisions of Article 16 including the requirements of §10-16-105, C.R.S.” This means that the Colorado Division of Insurance does not consider HRAs to be a way to legally circumvent the requirement that a small employer in Colorado can only pay for employees’ health insurance if the health insurance policy is a small group plan.
Article 16 was enacted in Colorado as a way to prevent employers from encouraging healthy employees to get lower-priced individual health insurance, while directing less-healthy employees towards the fledgling (at the time) high risk pool, CoverColorado. Since small group plans (for groups of 2 – 50) are guaranteed issue, all employees can enroll, regardless of health conditions. This helps spread the risk for those with high-cost health conditions, helps to keep CoverColorado from becoming inundated with sick employees of businesses that might have otherwise opted to reimburse employees for individual policies, and it helps to prevent discrimination in hiring (if employers are directing employees to seek out individual health insurance, they might be less likely to hire an employee who wouldn’t be able to qualify for a medically underwritten policy in the individual health insurance market).
The intentions behind the Colorado law are good, but Senate Bill 19 is a reflection of how the times have changed since 1994. The number of employers (especially small businesses) offering health insurance to their employees continues to decline, mostly because of cost. Health insurance premiums continue to increase in both the individual and small group markets, but individual insurance is still less expensive than group coverage. This is due mainly to the differences in underwriting: while small group plans are guaranteed issue, individual policies are medically underwritten (except for children) and will continue to be so for the next three years. Although the current law in Colorado makes sense from a theoretical standpoint, it’s understandable that lawmakers are trying to find ways to allow employers to provide at least some assistance to employees who need to purchase health insurance, even if the employer cannot afford to set up a traditional small group plan.