Health Care Reform, Small Employers

Nov 15 – Dec 15 Special Enrollment Period for Small Employers who Don’t Meet Minimum Participation

This is an updated version of an article first published here on November 4, 2013

A little-known requirement under Affordable Care Act (ACA) regulations published February 27, 2013 requires health insurance issuers to offer an annual one-month special open enrollment period (from November 15 – December 15) to employers in the small group market who do not meet the employee minimum participation or employer minimum contribution requirements.  The requirement is at 45 CFR 147.104 (Guaranteed availability of coverage).  Small employers who are unable to meet these requirements but want to offer a group health plan should contact their brokers immediately, so the necessary information can be compiled and provided to carriers before November 15th.

Health insurance carriers are not required to renew existing small group clients who do not meet minimum participation requirements, but only to take new ones.  However, carriers generally will renew existing plans because otherwise they would just be circulating these clients from carrier to carrier.  Check with your broker or carrier if you are in category.

Background

ACA section 2702 (a) is entitled “Guaranteed issuance of coverage in the individual and group market.”  It provides that, subject to specified limitations, “each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.”   However, other subsections of 2702 allow insurers to limit coverage offerings, such as by offering coverage only during open or special enrollment periods, or only to those individuals who live, work or reside in the service area of a network plan. Section 2702 also grants HHS authority to issue regulations with respect to enrollment periods.

Minimum Participation and Contribution Requirements

Many state laws (and federal SHOP rules) allow health insurers to refuse coverage to employer groups who do not meet employee minimum participation or employer minimum contribution requirements.

  • Minimum participation. In California (and many states) carriers can decline to issue group health insurance policies to employers if fewer than 70% of eligible employees enroll for coverage.  Employees who have other coverage through another group plan or through Medicaid or Medicare are not counted in determining compliance with the minimum participation rule.
  • Minimum Contribution. Employer contribution rules require employers to contribute at least a specified percentage (e.g., 50%) of the lowest-cost premium for employee-only coverage.

The Issue

Under the ACA’s “employer shared responsibility” provisions, employers with at least 50 full-time employees could be subject to a penalty (under IRC §4980H) if they do not offer health coverage to at least 95% of full-time employees.  In some states (California, for example), employers with 50-100 full-time employees are considered “small group” and can only purchase group health insurance in the small group market.

Employers cannot require employees to enroll unless the employer pays 100% of the premium cost, which many employers cannot afford to do.  Sometimes young or lower-income employees do not want to enroll even if they would not be required to pay much toward the premium.  Thus, some small employers with 50-100 employees could be caught between the proverbial “rock and a hard place” – required to pay penalties for not offering coverage, but unable to buy coverage because all insurers declined them because they did not meet minimum participation requirements.

Additionally, some small employers who are not subject to potential penalties (because they have fewer than 50 full-time employees) want to offer group health plans to their employees but have been declined by all carriers because they did not meet minimum participation requirements. These small employers can also take advantage of the special open enrollment period from November 15 – December 15.

HHS Regulations

HHS issued final regulations on February 27, 2013.  In the Preamble to these regulations (at page 13416), the HHS noted that “permitting issuers to deny coverage altogether to a small employer with between 50 and 100 employees based on a failure to meet minimum participation or contribution requirements could subject such employer to a shared responsibility payment under section 4980H of the Code for a failure to offer coverage to its employees.”  Thus, HHS provided in the final regulations at 147.104(b)(1):

“In the case of health insurance coverage offered in the small group market, a health insurance issuer may limit the availability of coverage to an annual enrollment period that begins November 15 and extends through December 15 of each year in the case of a plan sponsor that is unable to comply with a material plan provision relating to employer contribution or group participation rules. . . .”

California Law

Covered California (the California Marketplace) has adopted the same rule for small employer groups that purchase health insurance in the California Small Business Health Option Program (SHOP).  (California Exchange Regs. Sections 6522(a)(4) & (5) and 6522(b), adopted September 18, 2013.)

While section 6522(a) (Eligibility Requirements for Enrollment in the SHOP) generally requires that at least 70% of eligible employees of the qualified employer must enroll in health insurance coverage through the SHOP, and that the employer must pay at least 50% of the lowest-cost premium for employee-only coverage, section 6526(b) provides for the special November 15-December 15 open enrollment period for otherwise-qualified small employers who don’t meet the minimum participation or contribution requirements. Section 6526(b) provides as follows:

“If a qualified employer fails to meet the minimum participation or the group contribution requirements in Section 6522(a)(4) and (5), but satisfies the remaining eligibility criteria in Section 6522, the qualified employer may only elect to offer health insurance coverage through SHOP for its qualified employees from November 15th through December 15th of each year.”