Small-Employer Coverage Eligibility

Texas businesses with two to 50 “eligible” employees may obtain small-employer coverage from either a traditional insurance company or a health maintenance organization (HMO). Eligible employees are those who usually work at least 30 hours per week; are not temporary, part-time, or seasonal; and are not already covered by another group health plan. Sole proprietors, partners, and independent contractors are also eligible employees if they are included as employees under a small employer’s coverage. A business’ owners count toward the employee total.

The number of eligible employees – not total employees – determines whether a business is a small employer under Texas insurance law. For example, if your business has 60 total employees, it could still qualify if six of the workers are part-time and four have coverage through some other source, such as a spouse’s health plan.

If you decide to offer a health plan to your employees, you must make it equally available to all of your eligible employees and their dependents.

At least 75 percent of a small employer’s eligible employees must participate in the health plan for the employer to obtain coverage. Carriers must always “round down” when calculating the number of eligible employees. For example, a five-employee group would achieve 75 percent participation if three eligible employees participate. Seventy-five percent of five is 3.75 and 3.75 rounded down is three.

However, in the case of a business with only two eligible employees, the law requires 100 percent participation. A husband and wife working in a business count as two separate employees. Neither of the employees is eligible for coverage as a dependent of the other.

If you provide a health plan, state regulations and a federal law called COBRA (Consolidated Omnibus Budget Reconciliation Act) allow employees to maintain benefits for a period of time after separation from the job. It is your legal responsibility to inform employees of their rights to continue coverage. Former employees who choose to continue their coverage through COBRA or state continuation must pay the full cost of the plan. You are not obligated to contribute toward their premiums, even if you previously paid a share.  Ask your carrier about your responsibilities regarding COBRA.

Types of Plans

Health plans are classified as either “state-mandated plans” or “consumer choice plans.” A state-mandated plan provides certain required minimum features and coverages. A consumer choice plan is any plan developed by a carrier that excludes some state-mandated benefits. You will generally have a lower premium for consumer choice plans.

Although consumer choice plans are sometimes called “standard plans,” the coverages provided are not “standardized.” Each carrier’s consumer choice plan may be different, and a carrier may offer several different consumer choice plans.

Consumer choice plans must continue to include the following mandated coverages:
phenylketonuria treatment, if prescription drugs are covered, complications of pregnancy, minimum hospital stay after childbirth (federally mandated), reconstruction surgery following a mastectomy (federally mandated).

Consumer choice plans may vary depending on the type of carrier offering the plan. For example, HMO consumer choice plans must pay for 20 outpatient mental health visits per enrollee per year, but that’s not a requirement in indemnity (or insurance company-offered) plans. In addition, unlike insurance company plans, HMO consumer choice plans must include basic health care services, such as inpatient, outpatient, and preventative services. Carriers may offer optional benefits that vary widely from plan to plan.

When presenting prospective policyholders or contract holders with a consumer choice plan, carriers must include a written disclosure that lists the state-mandated coverages that are not provided. The policy or evidence of coverage must also include additional disclosures. 

See TDI for the  table comparing the differences between state-mandated benefits and consumer choice benefits for both indemnity plans and HMOs.

Shopping for Coverage

Because premiums, deductibles, copayments, and coinsurance levels can vary widely from plan to plan, it pays to shop around. When shopping for coverage, keep these guidelines in mind:

• Be sure you understand the full extent of each plan’s coverage when comparing plans and rates. If you decide to go with a consumer choice health benefit plan over one with all the state-mandated benefits, the carrier or agent is required to explain in writing which coverages you don’t have. 
• Plans with higher deductibles, copayments, and employee share of coinsurance generally will have lower premiums. Keep in mind, however, that your employees will also have to pay more out of pocket when they access services or benefits. 

Consider factors other than cost, such as a company’s financial strength and complaint record. These are indicators of the service you can expect. You can learn a company’s financial rating, as determined by an independent rating organization, by calling the Texas Department of Insurance (TDI) Consumer Help Line.  You can also learn information about the frequency of consumer complaints filed against specific companies by calling the Consumer Help Line 1-800-252-3439.

Buy only from licensed insurance companies and HMOs. Selling unlicensed coverage is illegal in Texas.  If you buy from an unlicensed carrier, your employees’ claims could go unpaid and you could be held liable for the full amount of your employees’ claims and losses. Guaranty associations pay the claims of licensed carriers that become insolvent.  You can learn whether a company is licensed by calling the Consumer Help Line or by viewing the company profiles on our website. 

Understand that employee health coverage is different from workers’ compensation insurance, which covers only job-related injuries and illnesses. Although workers’ compensation insurance is not required in Texas, it protects you from high damage awards in the case of workplace accidents. Providing regular health coverage to your employees is not a legal alternative to providing workers’ compensation insurance.

Employee Signup and Waiting Periods

New employees must be given at least 31 days from their start date to enroll in a plan. After this time, they may be required to wait up to one year for the next “open enrollment period” to join. Carriers must offer a 31-day open enrollment period annually.

You can choose to require your employees who enroll in a plan to wait up to 90 days before being eligible for benefits. During this period, the carrier may not charge you or the employee a premium.

Carriers may require participants to wait a certain amount of time before covering pre-existing medical conditions. In general, plans have different rules for pre-existing conditions. Plans using the open-enrollment requirement cannot make new members wait more than one year before covering their pre-existing conditions. 

New enrollees who were continuously covered for 12 months by a previous plan also do not have a pre-existing condition waiting period, as long as there was no more than a 63-day gap between the ending date of the old coverage and the effective date of the new coverage. This means the new plan would immediately cover the employee’s pre-existing conditions.

Employees with fewer than 12 months of coverage under a previous plan receive “credit” toward the pre-existing condition waiting period on a month-for-month basis. For the previous coverage to be considered “creditable,” it must have been in effect within 12 months prior to the start of the new coverage. For example, an employee covered for three months any time in the year prior would receive three months’ credit and would thus have to wait only nine months before pre-existing conditions are covered.

A small employer carrier cannot refuse to provide health coverage for your employees on the grounds of employee illnesses or pre-existing conditions. Carriers are also prohibited from using health-related factors – such as employees’ prior claims experience or information on conditions arising from violent family situations – to decide whether to provide coverage.

How Small Employer Plan Premiums are Calculated

The rates for any given small employer plan are not solely determined by the benefits and deductibles of the plan itself. Certain objective “case characteristics,” along with any health status-related factors of your employees, may also be components in determining the premium rate for the small employer group. Case characteristics consist of age, gender, group size, industry, and geography. Carriers can use some or all of these five objective criteria:

• Age of employees: Older people can reasonably be expected to have more expensive and more frequent health-related claims. Generally, the older your workforce, the more your plan will cost. 
• Gender: Females generally incur higher medical costs than males at younger ages, particularly during childbearing years. The variance diminishes with age until medical costs for males begin to exceed those for females as they near ages 50 and 60. If you have a younger, proportionately more female workforce, or one that is older and proportionately more male, expect to pay higher premiums. 
• Number of plan participants: Carriers often base rates on group size for two reasons. As size increases, administrative costs per insured decrease. Also, smaller groups tend to buy health coverage based on the targeted needs of participants, increasing the likelihood of claims for the benefits provided. As group size increases, this “custom-tailoring” becomes more difficult and premiums tend to decrease. However, the highest group size factor may not exceed the lowest group size factor by more than 20 percent. 
• Industry: Some industries have higher medical claims costs than others because of working conditions and the prevalence of accidents. High employee turnover in some industries can also result in higher administrative costs for the carrier. However, the highest industry factor a carrier charges may not exceed the lowest factor by more than 15 percent. 
• Geographic area: Health care costs vary by region due to differences in cost of living and medical practices, as well as the amount of medical competition in the area. Most plans vary rates by either county or ZIP code, using the employer’s business address to set rates.

The rating process for a small-employer group can be described as a two-step process. First, a carrier determines a premium rate based on case characteristics and plan design, but without regard to health status-related factors. This produces the baseline price of the policy. Second, the carrier may adjust the rate to reflect health status-related factors of the group. This adjustment must apply uniformly to all members of the group and may not exceed 67 percent of the baseline price of the policy.
Texas Department of Insurance 10/2008.