Group Health Insurance

Group Health insurance is issued to a business where there are a minimum of 2 or more; employer and employee, or 2 partners or members of an LLC.  Group planning of 2 to 50 lives are guaranteed to be issued regardless of any pre-existing health issues.

A summary of the how group plans are guaranteed to be issued regardless of pre-existing conditions, how group plans are priced, the type of group planning available for businesses, and how you could structure this to provide the best benefits for yourself, and employees at affordable costs

Guarantee Issue and Pre Existing Conditions Laws

Group plans of 2 to 50 lives,as part of California State Legislation #AB1672 in 1993 and the Kasselbaum-Kennedy Federal  legislation of 1996,  are guaranteed to be issued regardless of any pre-existing medical condition of any employee, as long as there is a minimum of 2 people in the business (owner and employee), with at least one full time (30 hours per week) W2 employee on the payroll for at least ½ of the previous quarter.

If you have a partnership, LLC Corporation, or S corporation as long as the partners, members, or shareholders receive a K1, this would also qualify the business for a group plan.

Employees that are listed as 1099 employees are normally not eligible.  You can insure an employee that resides in any State on PPO plans, as long as 51% of employees are based in California.

How Premiums are Structured for Small Group Plans

Group Planning Techniques to Control Cost

You can utilize Defined Benefit Planning. This planning allows employers to provide a wide menu of various health insurance plans each employee can select.

The employer can select either a particular plan from a menu of plans they will either pay the full premium, a percentage of the premium, or a stated amount of money that the employer will contribute to the employees cost of insurance.

In this type of planning the employer can control the cost to the business, while allowing the employees to select from a variety of different types of plans.  The normal planning technique for most firms is to limit the selection to a few plans of the business’s choice.

Section 125 POP planning

If you do decide to utilize the part payments, a set amount of dollar contribution, or if you do not pay any dependent coverage, I would suggest that you install what is called a Section 125 Premium Pay Only plan.  This will allow any employee, including the officers of a C Corporation, to pay any portion of non-reimbursed premiums on a pre-tax basis through payroll reduction.  This will save employees and the owners of a C Corporation 30% to 50% on premium payments.  The advantages to you the employer of this planning are: significant corporate tax savings through reduction of your taxable payroll, Employees can provide coverage for dependents while their take home pay decreases by a lower amount than if they had to provide coverage on their own, and this will also increase employee satisfaction.  There is no cost to you for installing this planning.

Tax Considerations

Premiums paid by your organization towards the group coverage are tax deductible as an ordinary business expense.

Types of Coverage Available

A generalized summary of the different types of group health plans available are:

HMO Plans

This type of plan allows the insured to obtain services with minimum out-of-pocket expenses. The insurance company contracts a set fee with physicians and hospitals for all services.

The employee selects a primary care provider from a list given by the insurance company.  The employee must see this physician first for all health care needs.  The insured would than pay a set fee for each visit, normally $10 to $40.

If a specialist is required, the primary care physician will send the employee to a specialist utilized by the HMO organization.  This insured would pay a set fee for this visit $20 to $50.

The remainder of health care expenses is provided at minimal out of pocket expense to the employee.

IIf a hospitalization is needed and/or surgery, the insured would be operated on by a surgeon that is associated with the HMO physicians group, and would be sent to a hospital that is selected by the HMO physicians group.

There is no coverage if the insured visits a physician, or health care provider, that is not part of the HMO system, unless it is an emergency situation, than it would be covered as if the employee went to his HMO provider.

Preventative Care Benefits

There is full coverage at $0 co pay and the deductible is waived for all Nationally recognized preventative care services including well child care, immunization, PSA screenings, Pap tests, Mammograms and more performed by preferred providers

Health Savings Account Plans

This type of planning was authorized by the Kennedy-Kasselbaum bill, HR3101.  The medical plans are high deductible plans, $1,500 to$5,000 for an individual with normally double this amount per family.  After the deductible is met, the plan would pay a percentage of all bills until the maximum out of pocket is met.  After the maximum out of pocket expense is reached, all covered expenses are paid at 100% for the remainder of the calendar year.

The plan normally pays preferred and non-preferred providers at different rates.  The costs for the preferred providers are allowed toward the deductible at the full amount the insured would pay.  The costs for Non Preferred providers would be allowed toward the deductible at the maximum amount allowed for the insurance companies preferred provider rates.

The advantage of this plan is the tax savings that can be provided. The insured can contribute $3,250 annually for an individual plan, or $6,450 for a family to a Health Savings Account for plan year 2013.  If the applicant is over 55, there is an additional $1,000 catch up that can be contributed.

Any contribution to an HSA account is deductible from the contributor’s gross income for that tax yearDeductions for the current year can be taken on contributions made as late as April 15th of the following year. Any interest earned on the funds placed in the account is tax deferred.

The insured can withdraw funds income tax free to pay for qualified medical expenses that are not reimbursed by the insurance company such as; amounts to satisfy the deductible, dental, vision, chiropractic, homeopathic, etc.

The bank will provide a debit card for you to use with your physician, pharmacy, or hospital to pay un-reimbursed health care bills with pretax dollars.

If funds are withdrawn for any reason other than a qualified medical expense prior to age 65, the funds withdrawn are included in that persons gross income and are subject to a 10% penalty tax in that taxable year.

Any funds left over at the end of the year can stay in the account and continue to accrue interest on a tax deferred basis.  Contributions can continue to be made each year.

Any funds remaining in the account at age 65 can be used as a retirement plan without any penalty tax.  The plan then functions as an additional IRA and funds withdrawn at retirement are taxed as ordinary income without penalty.

This type of planning in the small group market has been very limited.  Since the deductibles are very high, most employees see no value for themselves of this planning unless the employer will contribute some funds to a Health Savings Account for their benefit.  The premium savings is too small for the employer to accommodate a large contribution by the employer to a Health Savings Account for the employees benefit.

Point of Service Plans

This is a hybrid of an HMO and a PPO plan.  It is often referred to as an HMO Option Out plan.

The insured selects a primary care provider from a list provided by the insurance company, like an HMO plan.  If the insured utilizes the selected HMO physician/group, the reimbursements are paid as an HMO with a set fee per visit, and either no charge or a minimum out of pocket expense for all other covered medical services.  Unlike a regular HMO plan, the insured can select to go out of the HMO system and still have his health care expenses covered.  The plan would then function like a PPO plan.  The insured would have to satisfy a deductible.

After the deductible is satisfied, the insured would pay a small percentage of medical expenses for Preferred Providers until the Maximum Out of Pocket expenses is attained.  After the Maximum out of Pocket is paid by the insured, all covered expenses for Preferred Providers are paid at 100% for the remainder of the calendar year.  If the insured sees Non-Preferred Providers, the medical expenses are paid at a lower percentage.  Preventative services are not covered if the insured does not see the HMO Primary care provider.

This type of planning has become very expensive, and has a limited appeal for small group plans. 

Individual Health Insurance

Underwriting Requirements

Individual Health insurance is not currently guaranteed to be issued, except for children under age 18.  The new federal health care bill will make all insurance companies issue a policy to everyone regardless of any pre-existing health issues as of Jan. 1, 2014.

Individual policies are medically underwritten.  This is accomplished by completing an application and answering the medical questions on that form.  Additionally, some of the major companies are using phone calls from a representative of the carrier asking to clarify some medical questions.  This is being done so they do not have to go to your physician for medical records and can expedite the approval of the application.

If you are age 55 or older and have not seen a physician in 24 months or are 30 to 54 and have not seen a physician in 5 years, a paramedical examination may be ordered by the insurance company to be completed at no cost to you.  The exam will include height/weight, blood pressure reading, pulse rate, heart rate, urine specimen, and blood draw to check blood chemistry and lipids.  This is completed at your convenience at home or work by an independent paramedical service.

Premium Calculation

Premiums are based on the individual’s age, home zip code, and if you are only insuring yourself or are insuring any dependents. Rick Adjustment Factor If there are some pre-existing health issues, the insurance carrier can rates the policy and charge an extra premium for the additional claim risk.   Normally, this is done as an extra percentage based on the carriers preferred rates.  Thus if the preferred rate is $100, they can place an extra 20%, 25% 50% , 75% 100%, or 150% plus onto that premium depending on the health issue and the risk of higher claims.

Types of Coverage Available

The same planning as group plans are available in the individual market: ie PPO, HMO, and HSA compatible plans.

To see some of the planning available for the two most widely used individual insurance carriers; please go to: