Employee Benefits for Small Employers: Your Questions Answered
| Publication year | 2017 |
| Author | By Marilyn Monahan |
By Marilyn Monahan
Marilyn A. Monahan is the owner of Monahan Law Office in Marina del Rey. She focuses her practice on insurance law and employee benefits—concentrating on health and welfare plans—including compliance under the ACA, ERISA, HIPAA, and COBRA. She is a past chair of the Solo and Small Firm Section and may be reached at marilyn@monahanlawoffice.com.
Solo and small firm practitioners often have questions about the types of health and welfare benefits they can offer to their employees (or to themselves). Guidance on these issues is not readily available, and unfortunately the answers are sometimes complicated. This article will answer some common questions solo practitioners and small employers have about benefit options and flag some regulatory issues they should know about.
Both individual and small group health plans are available from Covered California,1 the state marketplace (or exchange) created pursuant to the Affordable Care Act (ACA). Individual and small group plans are also available outside the marketplace. In either case, a licensed accident and health agent may help with the selection and purchase.
Individual and small group health plans fall into four metal tiers: platinum, gold, silver, and bronze. A platinum plan, for example, will offer more generous benefits (such as lower copayments and deductible limits) than a gold plan. The plans are underwritten by insurance companies and HMOs.
Individuals are only allowed to purchase an individual plan during Covered California's annual open enrollment period, which begins November 1 of each year.2 This limit also applies to individual coverage purchased off the marketplace. If a person misses the annual open enrollment period, mid-year enrollments are only allowed if a person has a "special enrollment" event.
Small employers may purchase a small employer plan at any time during the calendar year, either from Covered California or outside of it. However, if an employee does not sign up at the beginning of the policy/plan year, the employee will only be able to enroll mid-year if he or she has a "special enrollment" event. Small group plans offered through Covered California are referred to as SHOP plans.
No. Both individual and small group coverage are "guarantee issue," which means that an individual or small employer cannot be turned down, so long as the applicant satisfies the plan's eligibility requirements. The eligibility requirements for small plans are important limitations and are often the reason small employers who want to provide coverage are unable to.
In California, employers with up to 100 "full-time equivalent" employees are eligible for small group health coverage.3 Very small firms should know that to be eligible for a small group plan the employer must have at least one W-2 employee other than a business partner or spouse.
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As part of the eligibility requirements, the insurer/ HMO will require the small employer to offer coverage to all eligible employees. An eligible employee is someone who works thirty or more hours per week.
In addition, the insurer/HMO will impose minimum employer contribution and participation requirements on the small employer. If the employer cannot satisfy these requirements, the insurer/ HMO will not issue coverage.
The insurer/HMO will require the employer to pay at least 50% of the cost of employee-only coverage (the employer is not required to contribute toward the cost of coverage for employees' dependents).4 In addition, the insurer/HMO will mandate that at least 70 % of eligible employees enroll, unless they are eligible for certain other coverage. This other coverage cannot be an individual policy, but it can be a spouse's employer's plan, Medicare, or Medi-Cal. However, if the employer pays 100% of the premium for all employees, or if the employer only employs 1 to 3 eligible employees, then all eligible employees must enroll.5
Yes. Each year, small employers that cannot satisfy the minimum participation and contribution requirements may apply for coverage between November 15 and December 15.6
May employees pay the cost of their group health coverage pre-tax?Yes. Employers may allow employees to pay their portion of the premium for their group health coverage pre-tax. This pre-tax arrangement is known as a "cafeteria plan." A cafeteria plan must be set up in compliance with 26 U.S.C. § 125 and governing regulations.7 If the plan is not administered according to these requirements, the tax benefits of the pre-tax arrangement are forfeited.8
Among other requirements, the employer must have a written cafeteria plan document, require that employees elect how much they will pay pre-tax before the start of the plan/policy year, and only allow employees to change their elections mid-year under certain specified circumstances.
Cafeteria plan documents may be prepared by an employee benefits lawyer, or may be obtained for a minimal fee from a payroll company or third party administrator. Setting up a cafeteria plan usually involves minimal...
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