Thursday, November 17, 2011

Puzzling Carrier/Government Tricks

Last week, I had the pleasure of once again hosting the Health Wonk Review, which included a post from our very good blog-friend Louise Norris that really piqued my interest:

"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."

For as long as I can remember, carriers here in Ohio 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 insurance company (often called "list billing").

Let's take an example:

Sam works for ABC Widgets, which does not offer group health insurance. But Sam, Joe and Sally each 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 argued 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 Ohio, and as Louise points out in her post, Colorado had no such moratorium.

Until now.

I've asked Louise to explain in more detail for InsureBlog readers:

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.

Thanks, Louise, for helping to put this in perspective!
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