What is the minimum number of employees needed for a small employer medical expense plan?

• Patient Protection and Affordable Care Act
• COBRA
• Employee Retirement Income Security Act of 1974 (ERISA)
• Health Insurance Portability and Accountability Act (HIPAA)

(This site is not intended as legal advice. You should not act upon any information contained in this site without consulting an attorney.)

Starting in 2014, the Affordable Care Act requires everyone to have health insurance or pay a penalty. Under the new law however, businesses with fewer than 50 full-time equivalent employees are not required to provide insurance to their employees. If you do offer healthcare coverage, you will be subject to both state and federal rules. This site gives a general overview of the most important regulations.

Which laws apply to your business depends on how many employees you have and the type of coverage you provide.

Patient Protection and Affordable Care Act

Type of law: Federal.

Who’s affected: All individuals and groups of employers and employees, whether currently covered, seeking coverage or previously not interested in coverage.

What it Does: Fully effective in 2014, the Affordable Care Act requires everyone to have health insurance or pay a penalty. However, businesses with fewer than 50 full-time equivalent employees are not required to provide insurance under the new law. Employers with 50 or more employees are subject to different regulations, some of which are discussed in this site. The law also makes important changes to rein in the cost of health insurance and offers tax credits to small employers to offset their healthcare costs. Since the ACA was passed in 2010, some states have passed several laws to match federal law.

Key provisions include:

• Shared responsibility requirement: Businesses with 50 or more employees will be required to offer their employees health insurance or pay a penalty.
• Health insurance marketplaces: States must set up online marketplaces—also called health insurance exchanges—that will allow small businesses and individuals to pool their buying power and purchase health insurance.
• Tax credits: Small business healthcare tax credits are offered under the law to help offset the cost of insurance. These tax credits have been available since the 2010 tax year. To qualify for a tax credit of up to 35% now and 50% in 2014 through the exchange, small business owners must pay at least half of employees’ healthcare premiums and have 25 or fewer full-time equivalent employees who earn an average of $50,000 or less per year.

COBRA

Type of law: COBRA is a federal law.

Who’s affected: Employers who offer group medical coverage.

What it does: At the time of termination, or under certain other circumstances, an employee may be eligible for the continuation of healthcare benefits as recognized under federal law, referred to as COBRA.  Under federal law, an employer must normally employ more than 20 employees (both full-time and part-time employees count) to be subject to COBRA requirements. Also under federal law, an employee has 60 days after notification of their COBRA rights to sign up.

The longest possible period during which COBRA continuation coverage must be provided is referred to as the maximum coverage period. There are three maximum coverage periods, as described below:

• 36 Months: Continued health care coverage must be offered for a period of 36 months for covered spouses or dependent children of an employee in the case of:
  • The death of the covered employee;
  • Divorce or separation of the covered employee and spouse;
  • The covered employee becoming eligible for Medicare; or
  • A covered dependent child ceasing to be a dependent child under the provisions of the plan (for example, when a child attains majority age).
• 18 Months: Continued health care coverage must be offered to the covered employee, spouse and dependent children for a period of 18 months when:
  • The covered employee is terminated (for reasons other than the employee’s gross misconduct); or
  • The covered employee suffers a loss of coverage under the employer’s group health plan because of a reduction in hours worked.
• 18 to 29 Months: COBRA benefits may be extended from 18 to 29 months for qualified beneficiaries who are totally disabled within the meaning of the Social Security Act at the time of the qualifying event (i.e., termination of employment or reduction in hours) or who become disabled within 60 days after COBRA coverage begins. For qualified beneficiaries who are disabled at the time of the qualifying event, extended coverage will terminate the month that begins 30 days after the date of final determination that the qualified beneficiary is no longer disabled, or after 29 months of coverage, if that occurs first.

Events that limit the duration of coverage: COBRA continuation coverage terminates when the qualified beneficiary becomes covered under another group health plan as a result of employment, reemployment or remarriage, so long as the other plan does not exclude a preexisting condition of the beneficiary. (In 2014 under the Affordable Care Act, preexisting condition exclusions will no longer apply.) In addition, no continuation coverage need be provided after:

• Failure to make timely premium payments under the plan;
• The qualified beneficiary enrolls in Medicare after electing COBRA; or
• The employer ceases to maintain any group health plan.

Premium charged for continuation coverage: The plan may require payment of a premium for continuation coverage. However, the premium may not exceed 102% for COBRA coverage of the applicable premium that would have been paid by the employer and the employee had the qualifying event not occurred. Note, however, that for employees entitled to a disability extension of the maximum coverage period, an employer may charge a premium of up to 150 percent of the applicable premium.

What you need to do: Employers must offer continuation coverage with benefits that are identical to the coverage provided under the plan to similarly situated beneficiaries who are still participants in the plan. A group health plan is required to provide an initial COBRA notice to each covered employee and spouse upon their first becoming covered by the group health plan. Within 30 days of the date on which a covered employee dies, is terminated from employment, has a reduction in hours, or becomes entitled to benefits under Medicare, the employer must notify the plan administrator, and, within 14 days, the administrator must inform the qualified beneficiaries of their rights to continuation coverage and provide a COBRA election form. Each qualified beneficiary has 60 days after the notice is received to elect COBRA coverage.

Similarly, a covered employee, spouse or dependent must notify the plan administrator in the event of divorce or legal separation, or of a dependent child ceasing to be a dependent child under the plan, within 60 days. After notice of the divorce, legal separation, or loss of dependent status by a child, the plan administrator, in turn, must within 14 days notify the qualified beneficiaries of the right to elect continuation coverage. In addition, qualified beneficiaries who are disabled at the time of the qualifying event must notify the plan administrator of the disability (within 60 days of the date of the Social Security Administration’s determination of the disability); and when the beneficiary is no longer disabled (within 30 days after final determination of the nondisability).

Employee Retirement Income Security Act of 1974 (ERISA)

Type of law: Federal.

Who’s affected: All private sector employers or sponsors (such as labor trusts or associations) that provide group health benefits, whether through the purchase of insurance or otherwise. Health benefit plans offered by state and local governments or churches are not subject to ERISA.

What it does: ERISA governs many employee benefit plan aspects, including how employers must provide plan information to employees. ERISA also governs the claims and appeals procedures for qualified plans.

What you need to do: You must provide all covered employees with a Summary Plan Description that describes the plan in understandable terms, how benefits are paid, when benefits are not paid, and employees’ rights and responsibilities. You must also provide a notice to all employees when you make a significant change to your plan. This notice is called a Summary of Material Modifications.

Health Insurance Portability and Accountability Act (HIPAA)

Type of law: Federal

Who’s affected: Federal law governs employers with two or more employees.

What it does: HIPAA allows employees to obtain health insurance when they lose their group health insurance or change their job, even if they have a preexisting health condition. If an employee qualifies, he cannot be denied insurance because of his medical history.

What you need to do: If your medical plan has a preexisting condition clause, make sure new employees provide evidence of creditable coverage, also known as a HIPAA certificate. Evidence of creditable coverage is generally a letter that describes how long the employee has been previously covered. You will need to notify the new participant of the length of any applicable preexisting condition exclusion after creditable coverage is taken into account. (In 2014 under Affordable Care, insurers will no longer be able to deny coverage to an individual based on a preexisting condition, health status, or claims history.) When coverage ends for an employee or family member, the insurer must send a HIPAA certificate to the former participant.

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