What type of health care benefits should you offer your employees?

If an employer chooses to offer health care benefits to employees, decisions will have to be made regarding which benefits should be offered and who will be covered in compliance with applicable federal and state laws.

Making the decision to offer health care as an employee benefit means making a series of decisions that require careful thought. While making a choice as to what kind of plan to offer is necessary, employers must also consider the following:

• Which services your plan will cover (there are federal and in some cases, state mandates and special rules for small businesses you should be aware of)
• Which employees your plan will cover (you may choose to exclude part-timers, for instance)
• What waiting period and eligibility requirements new employees will have
• How health plan portability requirements affect you

Covered health services

You will likely find that the differences between the health plan one employer offers and the health plan another employer offers are in the levels of reimbursement they offer than in the types of care that they cover. For example, if you look at ten different employer plans from different parts of the country, they'll all cover surgery on an inpatient basis, but some may have 80 percent reimbursement above a $500 deductible, others may reimburse at 90 percent if a network provider is used and 70 percent if not, and still others may reimburse at 100 percent if the surgery is performed on an outpatient basis.

Health care reform. The enactment of the Patient Protection and Affordable Care Act and related legislation in 2010 heavily regulates the insurance industry, instituting benefit and coverage mandates. Except for grandfathered plans, it mandates that by 2014, all qualified health benefit plans offer at least an "essential health benefits package" as defined by the Secretary of Health and Human Services. The law prohibits insurance companies from:

• denying coverage or refusing to renew coverage because of certain conditions;
• considering any factors other than age, geographic area, family composition and tobacco use for premium rating;
• imposing lifetime limits on the dollar value of coverage; or
• dropping qualifying children from their parents' insurance plans before the age of 26.

The expenses that you will typically find covered by health care plans include:

• treatment of illness, disease, or accidents
• medical, surgical, exploratory, therapeutic, or emergency care
• inpatient hospital room, incidentals, and treatment
• outpatient surgery and treatment
• doctor's office visits and treatment
• nursing services
• diagnostic care, such as x-rays, MRIs, or blood tests
• prescription drugs
• dental, vision, or hearing care, if required due to an accident or injury
• pregnancy and childbirth costs
• durable medical equipment purchase or rental
• specialty care, such as that provided in the Intensive Care Unit or Cardiac Care Unit

Just like what's included, common exclusions that you'll find in policies are:

• work-related injuries covered by workers' compensation
• services not recommended by a physician
• charges above those defined by the plan as reasonable and customary
• cosmetic surgery
• experimental procedures, drugs, or surgery

In addition, federal law (under health care reform) and most states' laws require insurance companies to include coverage for mental health and substance abuse.

State mandated health care coverage rules

State laws that tell insurers what health coverage they have to offer are called state mandates. Some common examples include coverage for mammograms, alcohol and substance abuse, infant care, home health care, and infertility treatment.

The benefit and coverage mandates instituted by the federal Patient Protection and Affordable Care Act and related legislation in 2010, may impact these state mandates, as well as exclusions from them.

Small employer health reform

Several states have enacted small employer market reforms that are designed to enable small employers to obtain health insurance at rates that are lower than rates that have traditionally been available to them. The reforms include laws that guarantee renewals; that limit the extent to which your group's health status can be used to set rates; that provide basic, low-cost policies that do not include costly benefits that are mandated for standard policies; and that require insurers to make coverage available to you regardless of your employees' health condition. No two states have the same set of reforms. An insurance agent can give you more information about the specifics in your state.

In the Health Insurance Portability and Accountability Act of 1996 (HIPAA), Congress extended some of these state reforms to the federal level. As of June 30, 1997, insurers that offer health plans in the small business market cannot exclude any small business from coverage.

If insurers choose to offer plans in the small business market, they must offer the plans to all small businesses in that market. Thus, for example, an insurer cannot choose to drop your coverage because one of your employees develops a heart condition. To gain the protection of these federal rules, though, you must have at least two employees.

The federal Patient Protection and Affordable Care Act and related legislation in 2010, may impact the particulars of these small employer market reforms.

What to consider when deciding whom to cover

The most important thing to remember regarding health care benefit coverage is that once you have established your rules, you must apply them consistently.

Provisions of the federal Patient Protection and Affordable Care Act and related legislation in 2010 affect whom must be covered by health benefits. For example, generally, qualifying children under the age of 26 may not be dropped from their parents' insurance coverage.

Most employers impose a requirement that says that an employee must be actively at work in order to be eligible for coverage. You must be careful when defining the term actively at work, however.

An employee does not necessarily have to be physically at work in order to be considered to be actively at work, as it is defined for purposes of health plan eligibility. Otherwise, employees who go on vacation would risk losing their health plan.

Must you cover part-time workers? Generally, you don't have to, though you may if you wish. One thing you should remember is that if you don't set any minimum hours per week or per year that employees have to complete to remain eligible for health benefits, you cannot terminate their coverage when, for example, they go on a disability leave. To avoid that problem, some employers who want part-timers to participate will establish a rule that says that any employee who works, for example, at least 30 hours per week is eligible to participate in the health plan. You should discuss your alternatives with your health insurance provider.

Do you have to offer coverage to spouses or dependents of workers? In short, no. If you do, you should clearly define who is a dependent. However, if you are a "large employer" under the Patient Protection and Affordable Care Act, dependents (which does not include spouses) must be offered qualifying health care benefits in order for you to be in compliance with the employer shared responsibility mandate.

May you offer benefits to unmarried domestic partners? You may, of course, but if you do, you should be aware that the fair market value of the insurance paid may be taxable to your employee under federal law. Also, it can be very difficult to define who is a domestic partner — for example, how long must the relationship have lasted? State law may also require that domestic partners be offered coverage. If you're interested, talk to your insurance company about it.

Health care benefit waiting period/eligibility requirements

Under the Patient Protection and Affordable Care Act and related legislation, for plan years beginning in 2014, generally, a waiting period may not be longer than 90 days. Other common time limits are:

• no waiting period; eligibility is immediate upon hire as a full-time employee
• 30 days of full-time employment

Which period should you choose? There are several factors that come into play in making your decision which eligibility period to choose. They are:

• Normal workforce turnover. If you have a high rate of employee turnover during the first couple of months, you may want to choose 90 days as the eligibility requirement; if you choose no waiting period, your administrative costs could be inordinately high.
• Competitive pressure. If you have to compete with other companies in your area for employees, you may end up at a competitive disadvantage if you require a longer waiting period than your competitors.
• Employees covered. Usually, only full-time employees are covered; if you want to cover part-time employees, you should establish an eligibility period based on a minimum number of hours per week or per year to remain enrolled.
• Price. It may impact your premium cost to go with a longer waiting period rather than a shorter one. Short periods can mean additional cost.

Age limits and coverage eligibility

Some employers place maximum and minimum age limits on health plan eligibility in order to keep costs down. This decision may well be driven by your health insurance company. Talk to them about whether they use maximums or minimums.

As for the minimum age, there are no laws telling you what you have to do. Many employers don't have a minimum age; many of those that do choose age 18.

Age maximums are a little trickier. Generally, an employer that places age maximums on employees runs the risk of violating the age discrimination laws. Of course, if you have fewer than 20 employees, the federal age discrimination laws do not apply to you (although state anti-discrimination laws might). As a consequence, if you have fewer than 20 employees, you may not have to offer employees who work past age 65 coverage on the same basis as other employees.

Age maximums are much more common in the area of employees' dependents. However, effective September 23, 2010, under the Patient Protection and Affordable Care Act and related legislation, if your plan covers children you are prohibited from dropping children from their parents' insurance plans before the age of 26. There is a temporary exception for grandfathered group plans until 2014 if the young adult is eligible for group coverage outside his or her parents' plan.

For more information on the Affordable Care Act and eligibility requirements, visit the government's healthcare information website.

Many health plans do require that those employees eligible for Medicare (i.e., age 65 or over) must take advantage of it.

Health plan portability

Group health plans with at least two participants on the first day of the plan year who are current employees are covered by the federal Health Insurance Portability and Accountability Act (HIPAA), which became effective in 1997.

HIPPA sets the maximum number of months that a group health plan may exclude coverage for preexisting conditions at 12 months, or at 18 months for late enrollees. Late enrollees are participants or beneficiaries who enroll in the plan other than the first period when eligible or under a special enrollment period.

Health care reform. The enactment of the Patient Protection and Affordable Care Act and related legislation in 2010 prohibits insurance companies from denying coverage or refusing to renew coverage because of certain conditions. The implementation of this particular provision begins in July 2010 and fully takes effect in 2014, when all discrimination based on pre-existing conditions is prohibited.

A preexisting exclusion is permissible only if it concerns a physical or mental condition for which medical advice, diagnosis, care or treatment was recommended or received within six months of the date of enrollment in the new plan. Conditions that have not been diagnosed or treated within the six-month period are not subject to any coverage exclusion. Genetic status is not an excludable condition, unless diagnosis or treatment was rendered within the six-month period.

Reducing the exclusionary period. The plan's preexisting condition exclusionary period is reduced, month for month, by the length of the employee's prior coverage for medical care under a wide variety of health plans, including group health plans, individual policies, HMOs, Medicare and other governmental medical care programs. Prior coverage reduces the time of the plan's exclusionary period, unless there has been a break in the coverage of more than 63 days.

Waiting periods and affiliation periods are not counted as breaks in coverage. When such a break has occurred, only the coverage after the break may be credited.

Certification of coverage. Employers must provide employees with a written certification of coverage showing the employee's creditable coverage when any of the following occur:

• an individual ceases to be covered under the plan or otherwise becomes covered under a COBRA coverage provision
• COBRA continuation coverage is exhausted
• upon request by the individual within 24 months of leaving the plan or at the end of COBRA coverage, whichever is later

To the extent that medical care under a group health plan consists of health insurance coverage offered in connection with the plan, the plan will satisfy the certification requirement if the issuer provides the certification.

Enrollment periods. Employees must enroll in an employer's group health plan at the first opportunity to take advantage of the 12-month preexisting condition exclusion period. Otherwise, the 18-month period for late enrollees may apply.

When an otherwise eligible employee declines coverage because he or she has other coverage available, perhaps as a dependent on a spouse's plan, and that coverage was lost, the employee must be given 30 days after the loss of coverage to enroll, upon request.

In order for this special enrollment period to apply, the prior coverage must have been:

• under another health plan and then COBRA and the COBRA coverage was exhausted;
• the other coverage was terminated upon loss of eligibility (due to separation, divorce, death, termination of employment or reduction in number of hours worked); or
• employer contributions were terminated.

When the group health plan covers dependents, and an eligible employee acquires a dependent through marriage, birth, adoption or placement for adoption, enrollment must be provided, measured 30 days from the date dependent coverage is made available or the date of marriage, birth, adoption or placement for adoption. Coverage will be effective, without waiting periods, on the date of birth, adoption or placement for adoption. In the case of marriage, not later than the first day of the first month beginning after the date the completed request for enrollment is received.