GROUP HEALTH INSURANCE PLANS

Group medical coverage refers to a single policy issued to a group (typically a business with employees, although there are other kinds of groups that can get coverage) that covers all eligible employees and sometimes their dependents. Individual medical coverage, on the other hand, is a single policy issued to a single person or family.

The rules are quite different for group coverage versus individual coverage, in large part because the insurer’s risk is calculated differently. With individual coverage, the insurer has historically based its premium rates (or denied coverage) on the detailed medical history of the person or family. (The Affordable Care Act will bring important changes to the individual market, including eliminating the ability of insurers to deny coverage based on preexisting conditions.)

With groups such as small businesses, the insurer determines a premium price based on risk factors balanced over the entire group, using general information on members of the group, such as age or gender. Insurers are required by law to offer coverage to small groups.

While there is no law requiring small business owners to provide health insurance, the Affordable Care Act makes substantial changes that small business owners should be aware of when deciding whether to purchase insurance for their employees. If you do choose to offer coverage, there are regulations you will have to follow—the most important of which we explain on this site.

Though large companies may face penalties in 2015 if they do not offer coverage under the Affordable Care Act, small businesses with fewer than 50 full-time-equivalent employees will not be penalized if they do not provide coverage. If you have at least 50 full-time-equivalent employees but none receive an individual premium tax credit or cost-sharing reductions (both based on income), there’s no penalty—whether or not you offer health insurance.

Under federal law, small employers are guaranteed group coverage should they choose to purchase it, regardless of the employees’ health status. A “small employer” is defined as a business with 2 to 50 full-time employees. Owners are generally counted as employees, so sole proprietorships with one employee usually fall into this category, as do partnerships without any employees (by definition partnerships have two or more partners). Some states define the self-employed as “groups of one” and require insurers to guarantee issue them coverage in the small group market.

The general rule is that if an employer offers group health coverage to any full-time employees, the employer must offer coverage to all full-time employees.

The employer has the option to offer coverage to part-time employees (defined as those working fewer than 30 hours per week). If the employer offers coverage to any part-time employees, all of them must be offered coverage.

These rules apply regardless of the medical condition of the employees. In other words, any eligible employee can’t be denied coverage based on previous medical problems, known as preexisting conditions.

Under the Affordable Care Act, group insurance plans are required to extend coverage to adult dependents through age 26. This only applies in cases where the adult dependent’s employer does not offer coverage. In 2014, the provision applies to all people under 26, whether or not their employer offers coverage. Dependents cannot enroll for coverage unless the employee has enrolled.

An employer can cover any employee who is on the payroll and for whom he or she pays payroll taxes. Although employees can opt out of the benefit program, virtually all insurers do require that a minimum number of your employees participate in their plan. Eligible employees generally include those who are on paid vacation, maternity or sick leave. With few exceptions, employees who are on unpaid leave are ineligible until they return to active work.

The following individuals are usually not eligible for small group medical coverage:

• Employees covered under a collective bargaining agreement
• Employees of unrelated organizations
• Independent contractors
• Non-employee directors of the company
• Retirees
• Seasonal employees
• Temporary employees

Businesses with fewer than 50 full time equivalent employees are exempt from penalties; however, you may qualify for employer health care tax credits.

Businesses with fewer than 50 full time equivalent employees are exempt from penalties (also known as the Employer Shared Responsibility Payment or “Play or Pay” penalty) faced by larger employers that do not offer coverage. However, employers who are close to reaching 50 full time equivalents are encouraged to closely monitor their workforce, as reaching the threshold and not offering health care coverage can result in steep penalties.

Many important parts of the health care law apply to businesses with more than 50 full time equivalent employees. Under the health care law, employers with 50 or more full time equivalents are considered “large businesses” and therefore required to offer employee health care coverage, or pay a penalty. Large employers will also be required to comply with a second mandate, which is to report to the IRS on the employee health coverage offered or not offered. Initial reports will be due by January 31, 2016, for the 2015 tax year.