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Laws Related to Health Insurance
 California Small Group Law AB1672
COBRA and CalCOBRA
Employee Retirement Income Security Act of 1974 (ERISA)
Health Insurance Portability and Accountability Act (HIPAA)
California Mental Health Parity Law AB88
San Francisco Health Care Security Ordinance (HCSO)
This site is not intended as legal advice. You should not act upon any information contained in this site without consulting your attorney.
There are no state or federal laws requiring employers to offer employees or their dependents medical insurance. However, certain employers with employees working in San Francisco are required to make an annual health care expenditure on behalf of their employees. If you do offer health care coverage, you will be subject to many rules and regulations. This site gives a general overview of the most important regulations.
There are several federal and state laws that govern various aspects of how businesses must handle insurance issues. Which laws apply to you depends on how many employees you have and the type of coverage you provide. In addition, if you have employees who work in San Francisco, you may be subject to the healthcare expenditure requirements of the Health Care Security Ordinance.
California Small Group Law AB1672
Type of law: State.
Who's affected: "Small employers" in California, defined as businesses with 2 to 50 employees, the majority of whom work in California. (Technically the law applies not to employers themselves, but to the insurance carriers that sell small group health coverage.)
What it does: AB1672 gives small employers who meet certain requirements access to group medical coverage. An insurer cannot deny qualified small employers group medical coverage based on the health status of their employees, and premiums can only be slightly higher than average if employees have health problems. The law's key provisions are:
- Guaranteed issue and renewal of small group policies,
- Rules on small group rates,
- Limitations on pre-existing condition exclusions, and
- Requirement that plans and brokers provide fair information about all products.
The requirements apply whenever an employer pays directly for any portion, however small, of an employee's coverage.
Guaranteed Issue and Renewal
Every small employer has the right to buy any benefit plan design offered or sold by a health plan to other small employers in the same geographic region. This is known as "guaranteed issue."
"Guaranteed renewal" means that a health plan may not cancel a small employer's coverage just because one or more enrollees has a condition that generates high health plan costs. A plan may cancel coverage in the event of fraud, failure to pay premiums, or noncompliance with participation or contribution requirements.
Rating Protections
California does not set health plan rates or require rates to be approved by state regulators. California law does limit a health plan's ability to charge low rates to groups whose members are all in good health, and high rates to groups that include sicker or riskier individuals. These rating protections operate by basing premium calculations on a "standard" rate that every health plan develops according to certain allowable factors. Plans must set actual premiums no more than 10 percent above or below the standard rate. This creates a "rate band" that allows the health plan to adjust employer rates for risk factors such as previous use of health services or industry type.
Limitations on Pre-Existing Condition Exclusions
- Benefits for small employers. AB1672 prevents insurers from denying coverage to a small employer on the basis of pre-existing conditions. In addition, as described in the Rating Protections section above, an insurer may not charge a small employer more than 110 percent of its standard premium.
- Benefits for employees. Certain plans require new enrollees to be covered for a period of time before the plan will pay benefits for a pre-existing condition. This period is called a "pre-existing condition waiting period" and may extend up to 12 months. Under AB1672, enrollees whose medical coverage ends within 62 days of becoming eligible for a new medical plan can receive "credit" toward meeting the waiting period. This ability to apply "creditable coverage" from one plan to the next is often referred to as "portability."
Access to Information
Insurers-as well as agents or brokers-are required to follow certain rules designed to ensure that small employers have access to the whole range of an insurer's product offerings, with accurate and understandable information about their options and rights. In order to facilitate comparison-shopping, the law generally requires insurers to produce and provide various materials, including a summary brochure of all of its benefit plan designs.
Small employers must be notified about standard employee risk rates and the impact of the risk adjustment factor in determining actual premiums. Once a premium is quoted, small employers will have 30 days to exercise the right to buy at the quoted rate.
Insurers, as well as agents and brokers, are prohibited from refusing or discouraging an application based on risk factors (such as health status, claims history, industry, occupation, or geographic location). Plans and agents are also prohibited from trying to steer "bad risks" to particular insurers or products.
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In the tool box, see "Regulatory Information" for more information about California's small group regulation. |
COBRA and CalCOBRA
Type of law: COBRA is a federal law. CalCOBRA is California state law.
Who's affected: Employers who offer group medical coverage.
What it does: At the time of termination, or under certain other circumstances, an employee may be eligible for the continuation of health care benefits as recognized under federal and state law, referred to respectively as COBRA and Cal-COBRA. In many significant respects, the requirements of Cal-COBRA are the same as those under COBRA. However, under federal law an employer must normally employ more than 20 employees (both full-time and part-time employees count) to be subject to COBRA requirements. Pursuant to Cal-COBRA, if the employer has an insured plan, as few as two employees will trigger obligations to continue health care benefits. Under both California and federal law, an employee has 60 days after notification of their COBRA/Cal-COBRA rights to sign up.
The longest possible period during which COBRA continuation cover-age must be provided is referred to as the maximum coverage period. There are three maximum coverage periods, as described below:
- 36 Months: Continued health care coverage must be offered for a period of 36 months for covered spouses or dependent children of an employee in the case of:
- The death of the covered employeeDivorce or separation of the covered employee and spouse
- The covered employee becoming eligible for Medicare
- A covered dependent child ceasing to be a dependent child under the provisions of the plan (for example, when a child attains majority age)
- 18 Months: Continued health care coverage must be offered to the covered employee, spouse and dependent children for a period of 18 months when:
- The covered employee is terminated (for reasons other than the employee's gross misconduct)
- The covered employee suffers a loss of coverage under the employer's group health plan because of a reduction in hours worked
- 18 to 29 Months: COBRA benefits may be extended from 18 to 29 months for qualified beneficiaries who are totally disabled within the meaning of the Social Security Act at the time of the qualifying event (i.e., termination of employment or reduction in hours) or who become disabled within 60 days after COBRA coverage begins. For qualified beneficiaries who are disabled at the time of the qualifying event, extended coverage will terminate the month that begins 30 days after the date of final determination that the qualified beneficiary is no longer disabled, or after 29 months of coverage, if that occurs first.Regardless of the size of the employer, an employee who has Federal COBRA coverage for 18 months, may be able to extend health insurance coverage under Cal-COBRA for 18 more months, for a total of 36 months. If Federal COBRA coverage lasted 36 months, an employee cannot get additional coverage under Cal-COBRA.
Events that limit the duration of coverage: COBRA continuation coverage terminates when the qualified beneficiary becomes covered under another group health plan as a result of employment, reemployment or remarriage, so long as the other plan does not exclude a preexisting condition of the beneficiary. In addition, no continuation coverage need be provided after:
- Failure to make timely premium payments under the plan
- The qualified beneficiary enrolls in Medicare after electing COBRA
- The employer ceases to maintain any group health plan.
Premium charged for continuation coverage: The plan may require payment of a premium for continuation coverage. However, the premium may not exceed 102 percent for COBRA coverage, and 110 percent for CalCOBRA coverage, of the applicable premium which would have been paid by the employer and the employee had the qualifying event not occurred. Note, however, that for employees entitled to a disability extension of the maximum coverage period, an employer may charge a premium of up to 150 percent of the applicable premium.
What you need to do: Employers must offer continuation coverage with benefits that are identical to the coverage provided under the plan to similarly situated beneficiaries who are still participants in the plan. A group health plan is required to provide an initial COBRA notice to each covered employee and spouse upon their first becoming covered by the group health plan. Within 30 days of the date on which a covered employee dies, is terminated from employment, has a reduction in hours or becomes entitled to benefits under Medicare, the employer must notify the plan administrator, and, within 14 days, the administrator must inform the qualified beneficiaries of their rights to continuation coverage and provide a COBRA election form. Each qualified beneficiary has 60 days after the notice is received to elect COBRA coverage.
Similarly, a covered employee, spouse or dependent must notify the plan administrator in the event of divorce or legal separation, or of a dependent child ceasing to be a dependent child under the plan, within 60 days. After notice of the divorce, legal separation or loss of dependent status by a child, the plan administrator, in turn, must within 14 days notify the qualified beneficiaries of the right to elect continuation coverage. In addition, qualified beneficiaries who are disabled at the time of the qualifying event must notify the plan administrator of the disability (within 60 days of the date of the Social Security Administration's determination of the disability); and when the beneficiary is no longer disabled (within 30 days after final determination of the nondisability).
Employee Retirement Income Security Act of 1974 (ERISA)
Type of law: Federal.
Who's affected: All private sector employers or sponsors (such as labor trusts or associations) that provide group health benefits, whether through the purchase of insurance or otherwise. Health benefit plans offered by state and local governments or churches are not subject to ERISA.
What it does: ERISA governs many employee benefit plan aspects, including how employers must provide plan information to employees. ERISA also governs the claims and appeals procedures for qualified plans.
What you need to do: You must provide all covered employees with a Summary Plan Description that describes the plan in understandable terms, how benefits are paid, when benefits are not paid, and employees' rights and responsibilities. You must also provide a notice to all employees when you make a significant change to your plan. This notice is called a Summary of Material Modifications.
Health Insurance Portability and Accountability Act (HIPAA)
Type of law: Federal and state.
Who's affected: Federal law governs employers with two or more employees. California law governs employers with one or more employees.
What it does: HIPAA allows employees to obtain health insurance when they lose their group health insurance or change their job, even if they have a pre-existing health condition. If an employee qualifies, he cannot be denied insurance because of his medical history.
What you need to do: If your medical plan has a pre-existing condition clause, make sure new employees provide evidence of creditable coverage, also known as a HIPAA certificate. Evidence of creditable coverage is generally a letter that describes how long the employee has been previously covered. You will need to notify the new participant of the length of any applicable pre-existing condition exclusion after creditable coverage is taken into account. When coverage ends for an employee or family member, the insurer must send a HIPAA certificate to the former participant.
California Mental Health Parity Law AB 88
Type of law: State.
Who's affected: All California employers who offer private medical insurance coverage.
What it does: For certain severe mental health conditions (including schizophrenia, bipolar disorder, major depressive disorders, and several others) or serious emotional disturbance of a child, health plans may not impose limitations or exclusions on mental health benefits that exceed those imposed on medical conditions in general. Plans may not impose higher copayments or deductibles for these conditions, nor may they impose different maximum lifetime benefits (caps) for these conditions. If the plan covers prescription drugs, prescription drugs for these conditions must also be covered.
What you need to do: There are no legal requirements for employers, but you may want to let your employees know that this law exists, and that they have the following rights:
- To a second opinion regarding diagnosis and treatment;
- To file a grievance through their health plan and then follow up through the Department of Managed Health Care, if they believe that medically necessary care has been denied, delayed, or modified.
San Francisco Health Care Security Ordinance (HCSO)
Type of law: Local.
Who's affected: Employers with employees working in San Francisco.
What it does: The HCSO requires that "covered employers" make specified "health care expenditures" on behalf of "covered employees." Covered employers include for-profit companies with 20 or more employees and non-profit companies with 50 or more employees. Covered employees include any employee working in San Francisco who has been employed for 90 days and who works 10 or more hours per week (dropping to eight hours in 2009). In addition to requiring that health care expenditures be made, the HCSO mandates that covered employers maintain certain records, provide certain notice to employees, and report compliance to the city.
What you need to do: You will be considered a covered employer if you are a for-profit company with 20 or more employees or a non-profit company with 50 or more employees regardless of where those employees work. If your company meets that standard, and any of your employees performs 10 or more hours of work per week within the geographic boundaries of San Francisco, you will be required to make health care expenditures on behalf of the covered employee(s). There are exemptions for certain employees, such as managers and supervisors.
Employers can meet their health care expenditure obligations in a number of ways:
- Payments to a health insurer to provide coverage for covered employees;
- Contributions on behalf covered employees to a health spending account, such as a health reimbursement arrangement, a flexible spending account, or a medical/health savings account;
- Cash reimbursements to covered employees for expenses incurred in the purchase of health care services, such as doctor and pharmacy bills; and
- Paying a health care provider directly for services rendered to covered employees.
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