Can I Offer Health Insurance To Certain Employees?

The Affordable Care Act (ACA) or Obamacare encourages employers to provide health care for their workers. The provision of health benefits is subject to the size of the company.

Many employers opt for providing health care for their workers to attract the best talent, retain a productive workforce, gain tax credits and avoid facing penalties. But, as an employer, are you required to provide health benefits for all your employees? This article looks at health care from an employer’s perspective.

How Many Employees Do You Need To Offer Health Insurance?

First off, you need to know whether you are eligible for providing health care or not. As per the ACA, all businesses that have more than fifty full-time employees have to provide health care for its workforce. A full-time employee is one that is working between thirty-five to forty hours, with an average of forty hours or more per week for the company.

If you happen to be a small business with fifty or less than fifty employees in your company, providing health insurance to your employees is up to your discretion. Having said that, it is notable to mention that many companies qualify for tax credits if they do provide health insurance to their employees. So, it might not be a bad idea to help your employees out.

Do Employers Have To Offer Health Insurance To All Employees?

Under federal law, no clause binds employers to offer health insurance to all employees. The company is free to define a policy under which certain workers may gain health benefits. The policy has to be uniform throughout the company for all employees. Heavy fines are imposed by the government for a policy that tends to discriminate amongst its employees.

Employment Classification For Health Insurance By Employers

The cornerstone for employment classification for providing health insurance is that it should be fair, lawful and free from discrimination. As an employee, you may choose to provide healthcare based on the following criteria:

  1. Working status i.e whether the employee is working full time or part-time
  2. Locality i.e whether the employee is in the same state as your company or not
  3. Salary status i.e whether the employee is getting paid hourly or is salaried
  4. Job title. You may choose to provide health care to employees in certain departments.
  5. Job seniority. You may choose to provide health care to employees at certain positions within your company.

As an employer, you must ensure that all the workforce that falls under any criteria that you have determined is provided with equal benefits. This is known as a bona fide classification.

Maximum Waiting Period For Health Insurance

The waiting period is the period that your employee will have to wait before they can draw on their health coverage. The maximum waiting period for health insurance is 90 days. However, many employees tend to reduce this waiting period to make their workforce feel welcomed and well taken care of. As an employee, you may also decide to have different waiting periods for different insurance groups.

Keep in mind that 90 days means 90 consecutive calendar days, as opposed to 90 working days. The company should take great care to guarantee that the insurance kicks in on the 91st working day. If the 91st working day happens to be a public holiday or a weekend, the insurance must be activated before this day. For this reason, companies prefer to have a waiting period of fewer than 90 days to avoid violating this clause.

Employee Benefits Discrimination

As an employer, under no circumstance are you permitted to discriminate between employers while awarding them their privileges. Employees are subjected to treat all their employees within a similar insurance group the same way and are allowed to provide different benefits to different groups. The Equal Employment Opportunity Commission Compliance Manual of Employee Benefits outlines the following factors that may constitute discrimination in benefits:

  1. Race
  2. Skin Color
  3. Gender
  4. Nationality
  5. Religion
  6. Sexual Orientation
  7. Physical or Mental Disability
  8. Country of Citizenship
  9. Age

Under the law, certain states take discrimination further to include veteran status, whether the employee is caring for a disabled dependant, his or her marital status, whether they are suffering from chronic diseases and their place of residence etc.

With this said, the law does provide a difference in benefits according to the age of the employees. This is permissible as per the Age Discrimination In Employment Act (ADEA). The ADEA allows the employer to provide lower life, health and disability benefits to older employees as compared to younger ones. They must still ensure that the total value of benefits for older and younger employees should be the same.

Self-Funded Health Insurance Discrimination

Self-funded health insurance refers to providing assistance in the event of an accident or medical requirement out of the pocket. The employer reimburses the entire cost of medical care, and not through an existing insurance policy. Generally, employers set up trust funds that cater to all such claims.
Under federal law, self-funded plans cannot discriminate on the eligibility criteria or the value of benefits provided to employees in favour of highly compensated employees. Failure to do so results in penalties, though these penalties are different than noncompliance violations of insurance plans.

Who are highly compensated employees?

Highly compensated employees within a company may refer to either an employee who is part of five of the highest-paid officers in his company, a shareholder owning more than ten per cent in value of the company’s stock, or an employer who is part of the group of highest-paid 25 per cent of all employees.

What Is A Self-Funded Health Insurance Plan Discrimination?

There are a few tests that can be used to determine if a plan is discriminating between its employees. Discrimination can be on the basis of eligibility or the benefits provided.

Self-Funded Health Insurance Eligibility Test For Discrimination

The tests for eligibility are only applicable to non-excludable employees. Non-excludable employees include all employees above the age of 25 years who have been serving the company for more than 3 years in a full-time role and hold US citizenship. The tests are:

  1. 70 per cent test: 70 per cent or more of all non-excludable employees benefit from the plan.
  2. 70/80 per cent test: 80 per cent of all employees eligible to benefit from the plan do so, with the percentage of non-excludable employees eligible to benefit at 70 per cent. This means that a total of 56 per cent of all non-excludable employees are eligible to benefit from the plan.
  3. Nondiscriminatory Classification Test: The plan does not discriminate in favour of highly compensated employees. The plan passes this test if it is provided per a bona fide classification and if an adequate ratio of non-highly compensated employees benefitting from the plan to highly compensated employees benefitting from it is maintained.

Self-Funded Health Insurance BenefitsTest For Discrimination

The benefits test is a marker to check if the plan is discriminating in terms of how it is carried out and who is the beneficiary. The tests are:

  1. Nondiscriminatory in nature: This means that all participants are provided with the same benefits as all highly paid employees. The waiting periods are also the same.
  2. Nondiscriminatory in its working: The benefits under the plan should be available for the dependents of all participants as they are available for dependents of highly compensated employees.

Since these tests require complex calculations, it is important to consult a benefits adviser to avoid being charged with penalties.

What Is The Penalty For Self-funded Health Insurance Discrimination?

The penalty for self-funded health insurance discrimination is different than the penalties for discrimination on health insurance plans. Discrimination against an employee as a result of failing the eligibility test could result in the reimbursement of the plan for that employee, known as discriminatory coverage. In the event of failing a benefits test, the amount totalling up to the excess benefits is paid or reimbursed to the employee.

To conclude, where it is up to the discretion of the employer to offer health insurance to certain employees only, care has to be taken to ensure that no discrimination is being carried out in the fulfilment of this task.

Tony Bennett

Tony Bennett

Tony Benett makes his living in the insurance industry by teaching and consulting. He is also recognized by the legal profession as an expert on insurance coverages. His insurance experience includes having worked at the company level, owned an independent general agency and having worked for an insurance association. He has received various certificates over the past few years and helps his clients and readers by giving them a realistic outlook on what they can expect to achieve within their set targets. At Insurance Noon, he is known for his in-depth analysis and attention to details with accuracy. He has been published as one of the most referred agents by his peers in the insurance community. Tony loves the outdoors and most sport events. His passion other than providing excellent advice is playing golf.

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