Group Health Insurance Plans

Fully Insured Group Health Insurance Plans: (Plans issued by insurance companies for the benefit of employees.) Group health insurance premiums are deductible by the employer, and benefits received under the group health insurance plan are tax free to covered employees and their dependents.

The Internal Revenue Code in general does not place restrictions on the ability of a group health insurance plan to discriminate against certain employees. However, discriminatory group health insurance plans may be taxed or penalized under other provisions of the law such as:

• Section 125 cafeteria plan nondiscrimination rules,
• Section 9801 portability rules,
• Section 9802 accessibility rules,
• Continuation coverage requirements under COBRA,
• Various state regulatory rules.

Self-Insured Medical Reimbursement Plans: (Plans where the company reimburses employees for costs not covered by insurance.) Must pass nondiscrimination tests in order for highly compensated employees to receive tax-free benefits.

COBRA (Consolidated Omnibus Budget Reconciliation Act) is a federal law giving employees and their dependents the right to continue their group health insurance coverage under certain circumstances after it otherwise would have been terminated. The cost of the continuing group health insurance coverage, plus an additional 2% to cover the employer’s administration costs; is paid by the employee or beneficiary. Continuing group health insurance coverage rules do not apply to small employers who had fewer than 20 employees on a typical business day during the preceding calendar year, or to government agencies and churches. 

1) Death of a covered employee—a minimum of 36 months group health insurance coverage must be offered to the surviving spouse and dependent children who are beneficiaries under the plan.
2) Termination (other than for gross misconduct) or reduction in hours of a covered employee’s employment. If accepted by the employee, group health insurance coverages must extend for at least 18 months.
3) Divorce or legal separation of a covered employee from a spouse. Continuing group health insurance coverage must be offered to the spouse and dependent children for at least 36 months.
4) If a covered employee becomes entitled to Medicare benefits, continuing group health insurance coverage under the employer’s plan must be offered to the employee’s spouse and dependent children for at least 36 months. 
5) If a dependent child’s eligibility for group health insurance coverage ends under the plan guidelines, continuing group health insurance coverage must be offered for at least 36 months.
6) Continuing group health insurance coverage must be offered for 36 months if regular group health insurance coverage is eliminated because the employer has a bankruptcy proceeding under Title 11.
7) Group health insurance coverage is extended from 18 months to 29 months if a covered employee (or other qualified beneficiary) is disabled during the first 60 days of continuation coverage. The 60-day period is measured from the date of termination of employment or reduction in hours.
8) A child born to or placed for adoption with a covered employee is eligible to be immediately enrolled.

The Health Insurance Portability and Accountability Act of 1996 expanded the availability of group health insurance coverage that allows employees to change jobs without fear of losing group health insurance coverage, and also improves group health insurance coverage access for individuals with pre-existing health conditions.

• Governmental plans.
• Accident, disability, liability, auto, credit, and other similar insurance policies.
• Dental and vision benefits, long-term care insurance, nursing home insurance.
• Coverage for a specified disease or illness, hospital indemnity insurance.
• Medicare supplemental coverage.

Pre-existing conditions: In general, an employee who has 12 months of group health insurance coverage with one employer can move to a new employer with new group health insurance coverage without becoming subject to a pre-existing condition exclusion of the new employer [IRC §9801]. The coverage period is extended to 18 months for certain late enrollees and reduced to 30 days for newborns and adoptees under age 18. Pregnancy can never be considered a pre-existing condition.

Discrimination [IRC §9802]: Eligibility for coverage in a group health insurance plan cannot discriminate against an employee or dependent based on:

• Health status,
• Medical condition (including both physical and mental illnesses),
• Claims experience,
• Receipt of health care,
• Medical history,
• Genetic information,
• Evidence of insurability (including conditions arising out of acts of domestic violence),
• Disability.

Multi-employer plans [IRC §9803]: A group health insurance plan which is a multi-employer plan cannot deny an employer continued access to

• For nonpayment.
• For fraud.
• For noncompliance with material plan provisions.
• Because the plan is ceasing to offer any coverage in a geographic area.
• Certain network plans when there are no longer any individuals enrolled who live or work in the service area.
• For failure to meet certain union agreements.

The penalty for failure to meet the rules on portability, access, renewability, and continuation of group health insurance coverage under COBRA is $100 per day for each affected individual during the noncompliance period. The maximum penalty is generally the lesser of 10% of the amount paid for medical care or $500,000.