Employer Funding Of Individual Health Insurance Varies By State

Over the past several months, I’ve written a few articles about the legality of employer reimbursement of individual health insurance premiums in Colorado.  Our friend and fellow blogger Hank Stern (writing at InsureBlog) found the changes interesting, and noted that the laws surrounding employer reimbursement of premiums vary quite a bit from one state to another (he’s in OH).

Hank and I wrote a joint post about the topic, which he published last week on InsureBlog.    Here’s Hank’s description of how the law works in OH (regular readers will note that it’s similar to how things used to be here in Colorado, before HRAs became a major issue, and of course before SB19 passed earlier this year).

“Does your employer help pay for your health insurance? For folks covered by employer-sponsored (aka “group”) plans, the answer’s yes (sort of, but that’s another post). But it’s a whole ‘nother matter when you’ve got an individual plan and your boss wants to help out with the premiums.”

For as long as I can remember, carriers here in OH have forbidden employers from directly subsidizing premiums for individually-owned plans. Although this applied across the board, it was specifically aimed at those small companies that offered to payroll deduct individuals’ premiums and then send them in to the carreir (often called “list billing”).

Let’s take an example:

Sam works for ABC Widgets, which does not offer group healthinsurance. But Sam, Joe and Sally ass own individual plans from (for example) Anthem. Their boss offers to set up a list billing arrangement, whereby he deducts the appropriate amounts from their paychecks each week, and then sends that all in to Anthem at the end of the month. In this case, he’s just acting as a conduit, providing nothing more than a convenience.

But if the boss were to go a step further, and offer to kick in, say, $25 a week towards each of their plans, this could create a major problem: it could very easily be aqrgued that he now has a group health plan, and the Anthem could potentially be on the hook for expenses not contractually covered under the individual plans.

So carriers forbid this practice, and life goes on.

But that’s there, and this is here.  Things are a bit more complicated in Colorado, and have gone through quite a few changes lately.  Since HRAs are federally sanctioned and guided by IRS code in terms of how HRA funds can be used, I’m wondering if other states will start to come up with laws similar to the one passed this year in Colorado, allowing employer funding of individual health insurance premiums (via HRA or wage adjustment) but with some caveats to discourage large numbers of employers from switching away from group plans.

In Colorado, it has also been illegal for many years for employers to an employee’s individual health insurance policy.  It was illegal for brokers to even discuss individual plans with an employee at their place of work – everything about individual policies, from the application to the billing, had to be done outside of work.  But then federally legal HRAs came on the scene and started to muddy the waters a bit.  Some HRA companies were actively soliciting brokers to get them to encourage employers to switch from a group plan to an HRA and have the employees seek out individual health insurance policies that the employer could reimburse via the HRA.  The big problem with that tactic is that some employees won’t be able to qualify for medically underwritten coverage in the individual market and are left with no option other than CoverColorado, the state’s high risk pool.  A flood of employees into CoverColorado threatened to destabilize the risk pool.

Earlier this year, the Colorado legislature passed Senate Bill 19, which changed the rules considerably regarding the legality of employer funding of individual health insurance.  Employers can now fund individual health insurance premiums for their employees via an HRA or wage adjustments – as long as the employer has not had a group health plan in place in the past 12 months.  Senate Bill 19 has resulted in a new section on individual health insurance applications in Colorado wherein the applicant has to state whether or not an employer will be reimbursing any portion of the premium, and if so, whether or not the employer has had a group policy in place in the last 12 months.  If yes to both, the application will be declined (unless the employee agrees to pay all of the premiums without any assistance from the employer).

Senate Bill 19 was a big change to the legal landscape of individual health insurance in Colorado.  It’s not a perfect system by any means, but it does allow employers – who wouldn’t otherwise be able to afford group insurance – to kick in at least a small amount of money towards their employees’ health insurance premiums.  The provision requiring 12 months between coverage under a group plan and reimbursement for employees’ individual policies will hopefully help to prevent employers from dropping group plans just to send their employees into the individual market and CoverColorado.  This should help to prevent destabilization in both the small group market and CoverColorado.  But it’s also causing some employees to be declined for coverage when they may not have any other option at all (assuming their employer has already dropped the group plan and isn’t going to reinstate it, and assuming that they were relying on the contribution from the employer to be able to afford a new individual policy.)

Starting in 2014, this shouldn’t be an issue anymore, as all policies are slated to be guaranteed issue by then.  But for the next couple of years, it’s likely to cause some headaches.

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.

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