May an employer require its employee to have health coverage?

[Peter Gulia]

An employer asked me: "Is it legal" for an employer to require, as a condition of employment, that its employee have health coverage (somehow, not necessarily under the employer's plan)?

The employer pays most, but not all, of the premium for an employee enrolled under its group health insurance contract.

The employer told me a health insurance salesperson suggested the idea as a way to get a sufficient percentage of employees to meet an insurer's underwriting requirement.

The workforce is low-paid and does not fear the play-or-pay excise tax. Several employees refuse to do anything about getting health coverage.

Beyond employee-benefits issues, what kinds of employment-law problems might result from refusing to continue an employee if he does not furnish proof of health coverage?

[lvena]

A group of 100+ FTE can force enroll the employee in the company plan if that plan meets the requirements (affordability, min. coverage). And, there is no need to offer the employee an opt-out provision, even if the employee must pay for the coverage. Keep in mind to meet the requirements, the employer cannot charge the employee more than the 9.5.

The employer may not force the employee to take coverage elsewhere though.

[Peter Gulia]

Thank you for the help.

Does the mention of 100 full-time employees mean a different rule applies for an employer that has fewer than 100 FTEs? (The employer I ask about has 35 employees.)

Is the rule an Affordable Care Act provision or a State's law for group health insurance contracts?

[leevena]

Thank you for the help.

Does the mention of 100 full-time employees mean a different rule applies for an employer that has fewer than 100 FTEs? (The employer I ask about has 35 employees.)

Is the rule an Affordable Care Act provision or a State's law for group health insurance contracts?

Sorry, should have been a little more clearer. Yes, it has to do with ACA, but I cannot say about state law. Only caution I would offer is about the 35 employees. ACA uses " full time equivalents" so it is possible that the group has over 100 fte's but only 35 currently insured.

[GMK]

So, if the employer actually has fewer than 100 FTEs (or maybe it's 100 or fewer FTEs), the employer cannot force enroll the employees into the company plan, even if the plan meets the affordability and coverage requirements, true?

[lvena]

So, if the employer actually has fewer than 100 FTEs (or maybe it's 100 or fewer FTEs), the employer cannot force enroll the employees into the company plan, even if the plan meets the affordability and coverage requirements, true?

Yes, that is the way I and our consulting attorney understand the law. Difficult to believe that an employer would require an employee to enroll when the employee must make a contribution, but I am sure there are some out there.

[jpod]

Why can't you cover them and lower their wages/salaries (subject to minimum wage requirements)?

[lvena]

Why can't you cover them and lower their wages/salaries (subject to minimum wage requirements)?

If you are asking me, I do not know the answer to that. I am a benefits guy, not an HR.

[hr for me]

My opinion as HR/Payroll and Benefits of a small set of companies --> Because most employees near the minimum wage levels would rather have the wages than the benefits of health insurance. Back in the good ol' days, when health insurance was great coverage with low premiums, we had all the employees at one location ask to be given the money as wages rather than the coverage -- they weren't using it and in review, we were paying for non-used coverage.

Many employees at that level will find another employer that doesn't "force" coverage who will pay a higher hourly wage and that is what they are looking for (especially if they can get cheap/subsidized Obamacare from the marketplace). They need that extra money for shelter/food/etc. And I have to agree that even if covered, many times the copays and deductibles are so high that they might as well not be covered.

[Flyboyjohn]

Reminds me of a scheme being promoted to large (ALE) employers:

Auto-enroll all EEs in a "skinny" plan (not minimum value, about $50/month premium)

Since EEs are enrolled in an employer plan they can't get Marketplace subsidies so no employer penalties. Also, plan qualifies as MEC so EEs won't be subject to the individual penalty.

However, there is guidance that while auto-enrollment is OK the EE must be given an option to waive the coverage (and therefore qualify for subsidies since plan does not provide minimum value).

Employer's hope is that EEs will be happy to be avoiding individual penalty and won't waive.

[jpod]

The original question assumed that the employer would force employees to have health insurance, either buying it through the employer or elsewhere. So, all of the explanations as to why people don't want health insurance are irrelevant. My question still stands: Why not give it to them for free and if the employer doesn't want to pay for it reduce their salaries or wages simultaneously? That can't possibly be illegal, except perhaps for some requirement to give some advance notice in some jurisdictions.

[Flyboyjohn]

Agree with jpod except to also add that EEs have to be given the option to waive the ER coverage even if it's "free".

[jpod]

What law requires that they be allowed to waive coverage and still keep their jobs?

[Flyboyjohn]

In the context of forcing EEs to take coverage that would be inferior or inadequate for their needs and preventing them from taking advantage of Premium Tax Credits and Cost Sharing Reductions I would look at ACA section 1558 and possibly 1557 along with ERISA 510.

[jpod]

You can't be serious, can you? Here we are talking about providing free ACA-compliant individual coverage, and, presumably, offering ACA-compliant coverage for dependents.

[Peter Gulia]

I appreciate everyone's help and some good analysis.

But we haven't exactly handled my originating query.

An employer, without any compulsion to do so and not because the employer faces a play-or-pay excise tax, wants to help those of its employees who want health coverage. The counts of total employees, full-time employees, and full-time-equivalent employees all are below 50. The group health insurance contract is a standard (non-skinny) coverage that provides at least minimum value. The employer is willing to pay for most, but not all, of the premium for employee-only coverage. The portion the employer is willing to pay results in keeping the participant contribution within the ACA affordable range for every employee.

Despite what the employer considers a decent offer, the percentage (within those who do not have coverage other than through the employer) of eligible employees who would enroll is insufficient to meet the insurer's underwriting requirement.

The employer is thinking of saying to its employees: If you want to be our full-time employee, you must show you have health coverage by other means or enroll in our group health insurance. If you do neither, we will not continue you as our full-time employee; we'll restrict your workweek to three eight-hour shifts or two ten-hour shifts. (The employer is not worried about attracting sufficient employees.)

Would doing so be contrary to law?

[Chaz]

This is off the top of my head but the only restriction under federal law preventing an employer from requiring employees to take employer-based coverage that I can think of is the employer's shared responsibility obligations under the ACA. If that is not an issue, I can think of no other applicable federal law.

One stumbling block may be state wage and payment laws. Jpod's suggestion of providing coverage "free" with a corresponding reduction in pay may work towards that end but that is a state-specific question for an employment lawyer.

I can say that a permissible plan design is to permit employees to opt out of coverage only if they can demonstrate that they have other coverage. I see that often and generally advise my clients to so provide if for no other reason than the paternalistic preference that employees not go "bare."

I would guess that employer probably can restrict employees who decline coverage and who do provide other evidence of coverage to part-time rather than full-time work but that is just a guess and is ultimately another question for an employment lawyer.

[lvena]

I appreciate everyone's help and some good analysis.

But we haven't exactly handled my originating query.

An employer, without any compulsion to do so and not because the employer faces a play-or-pay excise tax, wants to help those of its employees who want health coverage. The counts of total employees, full-time employees, and full-time-equivalent employees all are below 50. The group health insurance contract is a standard (non-skinny) coverage that provides at least minimum value. The employer is willing to pay for most, but not all, of the premium for employee-only coverage. The portion the employer is willing to pay results in keeping the participant contribution within the ACA affordable range for every employee.

Despite what the employer considers a decent offer, the percentage (within those who do not have coverage other than through the employer) of eligible employees who would enroll is insufficient to meet the insurer's underwriting requirement.

The employer is thinking of saying to its employees: If you want to be our full-time employee, you must show you have health coverage by other means or enroll in our group health insurance. If you do neither, we will not continue you as our full-time employee; we'll restrict your workweek to three eight-hour shifts or two ten-hour shifts. (The employer is not worried about attracting sufficient employees.)

Would doing so be contrary to law?

Thanks for the clarification. I incorrectly assume it was a large group since you mentioned the pay or play.

The answer for this under-50 group is no, the employer cannot require someone to enroll and pay a contribution. But a quick caveat, they can if the employee has an employment contract that requires it or if part of a collective bargaining agreement that requires employee to enroll.

The employer could require if there is no employee contributions.

[Flyboyjohn]

Is this a fair statement of the question:Is it illegal for an employer to punish/discriminate against an employee who refuses to enroll in and make a contribution towards the premium for a "benefit" that the employee doesn't want?

I believe it is. What if the employee has a sincerely held religious objection to health insurance in general or contraception coverage specifically? What if the employee would prefer to have Medicare as their primary coverage? In states I'm familiar with it's illegal to withhold $$ from an employee's pay involuntarily except under legal compulsion.

Since "minimum participation" requirements are no longer legal and in the small group environment the insurer's age banded, community rated premiums are available to all comers I also don't understand how the insurer is saying your client isn't meeting underwriting requirements.

IMHO bad idea, don't do it.

[Peter Gulia]

Thanks again, Chaz, Ivena, and Flyboyjohn, for helpful observations.

And please understand, none of what the employer is considering is based on my advice.

The only advice I've given so far is to push back on the ostensible underwriting requirement.

Flyboyjohn (and anyone who might point me to it), while I'm ready to do my own legal research, if your recall can speed my search, what is the law source making no longer legal a minimum-participation requirement?

[lvena]

Regarding the above comment “Since "minimum participation" requirements are no longer legal and in the small group environment the insurer's age banded, community rated premiums are available to all comers I also don't understand how the insurer is saying your client isn't meeting underwriting requirements.”, this is not true. To be fair, this can be a confusing issue.

Reference the PHS Act sections 2701-Fair Premiums, 2702-Guaranteed Issue, and 2703-Guaranteed Renewability.

To begin with, self-funded carriers and Grandfathered plans are not subject to these, so they are free to set participation and contribution requirements as they see fit.

A carrier in the small group market can have a minimum participation requirement, but with caveats. ACA provides for guaranteed coverage but only during the special enrollment period for small group which is Nov 15-Dec 15. However at renewal the carrier could require the participation requirement be met and if not could cancel the coverage.

[Peter Gulia]

Ivena, thank you so much!

For others who want to refer to these provisions, I add below hyperlinks to the compilations in the United States Code.

Public Health Service Act § 2701 [Fair Health Insurance Premiums]
42 U.S.C. § 300gg
https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg.pdf

Public Health Service Act § 2702 [Guaranteed Availability of Coverage]
42 U.S.C. § 300gg-1
https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg-1.pdf

Public Health Service Act § 2703 [Guaranteed Renewability of Coverage]
42 U.S.C. § 300gg-2
https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg-2.pdf

Public Health Service Act § 2703(b)(3) states: “A health insurance issuer may nonrenew or discontinue health insurance coverage offered in connection with a health insurance coverage offered in the group or individual market based only on one or more of the following: . . . In the case of a group health plan, the plan sponsor has failed to comply with a material provision relating to employer contribution or group participation rules, pursuant to applicable State law.”

Does this mean a health insurer may nonrenew a group contract (perhaps one that had its initial enrollment in an open-enrollment period) merely because an insufficient number of eligible employees choose coverage?

Is it fair that a worker could be denied health coverage because his coworker refuses to enroll?

[lvena]

Ivena, thank you so much!

For others who want to refer to these provisions, I add below hyperlinks to the compilations in the United States Code.

Public Health Service Act § 2701 [Fair Health Insurance Premiums]

42 U.S.C. § 300gg

https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg.pdf

Public Health Service Act § 2702 [Guaranteed Availability of Coverage]

42 U.S.C. § 300gg-1

https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg-1.pdf

Public Health Service Act § 2703 [Guaranteed Renewability of Coverage]

42 U.S.C. § 300gg-2

https://www.gpo.gov/fdsys/pkg/USCODE-2014-title42/pdf/USCODE-2014-title42-chap6A-subchapXXV-partA-subpart1-sec300gg-2.pdf

Public Health Service Act § 2703(b)(3) states: “A health insurance issuer may nonrenew or discontinue health insurance coverage offered in connection with a health insurance coverage offered in the group or individual market based only on one or more of the following: . . . In the case of a group health plan, the plan sponsor has failed to comply with a material provision relating to employer contribution or group participation rules, pursuant to applicable State law.”

Does this mean a health insurer may nonrenew a group contract (perhaps one that had its initial enrollment in an open-enrollment period) merely because an insufficient number of eligible employees choose coverage?

Is it fair that a worker could be denied health coverage because his coworker refuses to enroll?

Does this mean a health insurer may nonrenew a group contract (perhaps one that had its initial enrollment in an open-enrollment period) merely because an insufficient number of eligible employees choose coverage? Yes.

Is it fair that a worker could be denied health coverage because his coworker refuses to enroll? Absolutely. Think of it from another perspective, is it fair that the carrier will have to keep a group with adverse selection causing higher costs for others?

[Peter Gulia]

Thanks again.

It is so that an adverse-selection subgroup within a wider community-grated group can result in inefficient or even unfair pricing for others.

But isn't the point of community rating to cause some better risks to subsidize some worse risks?

Do many or most small-business employers in the small-group market present somewhat similar risks of not knowing how an employer's subgroup will change in health and participation from one year to the next?

Any BenefitsLink mavens want to weigh in with other thoughts?

[lvena]

Thanks again.

It is so that an adverse-selection subgroup within a wider community-grated group can result in inefficient or even unfair pricing for others.

But isn't the point of community rating to cause some better risks to subsidize some worse risks?

Do many or most small-business employers in the small-group market present somewhat similar risks of not knowing how an employer's subgroup will change in health and participation from one year to the next?

Any BenefitsLink mavens want to weigh in with other thoughts?

Doubt if there are many benefits guys on this site, seems to be mostly retirement.

Yes, you are correct about community rating, but to a point. When there are other options available in that market, say for example self-funding, the good risk will exit the community-rated pool and migrate to the lower cost option(s). The effects on this can be devastating. A case in point is the PacAdvantage model from California which lasted about 10 years. With multiple carriers competing for small group business via an exchange the death spiral began as some carriers "pool" became populated with higher cost due to the built in adverse selection characteristic of the program. As they raised their premiums to cover the cost, good risk began to flow to the other lower cost carriers. Eventually the carrier would exit the exchange. It all started again, with the new "high cost" carrier, and so the cycle continued until closing down.

Yes, the small groups struggle with this constantly, but keep in mind the old 80/20 rules. In group health more than 80% of the claim cost comes from less than 20% of the group population. Just like the PacAdvantage, the better risk (employees) drop coverage. Problem is they represented very little claim cost and a larger premium cost.