Age- and Gender-Related Premiums

[Guest TommyS]

Is there a maximum number of employees that a company may have to be able to have an age and gender related health plan with an insurance carrier? Like below the ERISA cut-off? Or are such plans okay under ERISA and the federal anti-dsicrimination laws (Title VII, ADA, etc.) no matter how many employees?

Follow up. May an employer who pays 75% of the premium under an age and gender related health plan with an insurance carrier require each employee to pay 25% of the premium attributable to that employee or must the employer set a fixed amount for types of coverage? For example, say all the employees have either single coverage or family coverage - must the employer determine a set rate to charge all employees for the single coverage regardless of their age and gender and another set rate for all employees for family coverage regardless of age and gender (rather than determining 25% of the actual premium for each employee which varies based on gender and age)? Or isn't that necessary under federal law?

Thanks in advance.

[Guest taylorjeff]

Hi,

I don't know if there is a maximum. If so, it would most likely be set by state law and insurance code, not federal law. Most states now have small group rating laws that generally apply to employers with 50 or fewer employees. I'm most familiar with Illinois and Missouri. Both allow age / gender rating. Some carriers use age / gender and some do composite rates. Normally you see age / gender rates with employers of 25 lives or less, though I've seen with up to 50 lives. Everything over 50 that I've seen has been composite. I would say if you have more than 50 lives to ask the carrier if they could rate it that way. I don't know of any laws that would prevent it.

The employer contribution is up to them. They have to meet carrier underwriting guidelines which will vary some but usually state something like a minimum of 50% single coverage or 25% family coverage. There are participation minimums also.

Some employers base the employee cost on what they're being charged for that employee and/ or dependents. A young male employee will be charged more to cover their dependent spouse than a young female employee will for her dependent spouse. An older employee will be charged more for themselves and dependents that younger employees.

Other employers will charge a flat rate for employee, employee / spouse, etc. usually for administrative simplicity. In this situation, the younger employees probably are overpaying some and the older employees are getting a subsidy, which is what basically happens when the carrier develops a composite rate structure.

Is there a maximum number of employees that a company may have to be able to have an age and gender related health plan with an insurance carrier? Like below the ERISA cut-off? Or are such plans okay under ERISA and the federal anti-dsicrimination laws (Title VII, ADA, etc.) no matter how many employees?

Follow up. May an employer who pays 75% of the premium under an age and gender related health plan with an insurance carrier require each employee to pay 25% of the premium attributable to that employee or must the employer set a fixed amount for types of coverage? For example, say all the employees have either single coverage or family coverage - must the employer determine a set rate to charge all employees for the single coverage regardless of their age and gender and another set rate for all employees for family coverage regardless of age and gender (rather than determining 25% of the actual premium for each employee which varies based on gender and age)? Or isn't that necessary under federal law?

Thanks in advance.

[Guest TommyS]

Thanks for the information; it's very helpful.

Hi,

I don't know if there is a maximum. If so, it would most likely be set by state law and insurance code, not federal law. Most states now have small group rating laws that generally apply to employers with 50 or fewer employees. I'm most familiar with Illinois and Missouri. Both allow age / gender rating. Some carriers use age / gender and some do composite rates. Normally you see age / gender rates with employers of 25 lives or less, though I've seen with up to 50 lives. Everything over 50 that I've seen has been composite. I would say if you have more than 50 lives to ask the carrier if they could rate it that way. I don't know of any laws that would prevent it.

The employer contribution is up to them. They have to meet carrier underwriting guidelines which will vary some but usually state something like a minimum of 50% single coverage or 25% family coverage. There are participation minimums also.

Some employers base the employee cost on what they're being charged for that employee and/ or dependents. A young male employee will be charged more to cover their dependent spouse than a young female employee will for her dependent spouse. An older employee will be charged more for themselves and dependents that younger employees.

Other employers will charge a flat rate for employee, employee / spouse, etc. usually for administrative simplicity. In this situation, the younger employees probably are overpaying some and the older employees are getting a subsidy, which is what basically happens when the carrier develops a composite rate structure.

Is there a maximum number of employees that a company may have to be able to have an age and gender related health plan with an insurance carrier? Like below the ERISA cut-off? Or are such plans okay under ERISA and the federal anti-dsicrimination laws (Title VII, ADA, etc.) no matter how many employees?

Follow up. May an employer who pays 75% of the premium under an age and gender related health plan with an insurance carrier require each employee to pay 25% of the premium attributable to that employee or must the employer set a fixed amount for types of coverage? For example, say all the employees have either single coverage or family coverage - must the employer determine a set rate to charge all employees for the single coverage regardless of their age and gender and another set rate for all employees for family coverage regardless of age and gender (rather than determining 25% of the actual premium for each employee which varies based on gender and age)? Or isn't that necessary under federal law?

Thanks in advance.

[Don Levit]

Tommy:

Could you tell us a little more about what the employer is trying to accomplish?

Is his main concern abiding with the federal "discrimination" provisions?

In general, insurers cannot charge different premiums based on health status.

However, plans may establish parameters for similarly situated individuals.

Plans may not require an individual to pay a premium greater than that for similarly situated individuals.

One way to comply with these provisions, in my opinion, is to offer varying deductibles, as well as varying annual benefits.

While each employee pays the same premium per dollar of coverage, the premiums do not "discriminate" against the lower claim users, which is important to keeping the mix of healthy and sick employees a "healthy" one.

Don Levit

[Guest TommyS]

Sure, Don. The employer is trying not to run afoul of federal antidiscrimination laws, which I believe kick in at 15 employees. Employer wants to require each employee to pay 25% of the actual cost to employer of health insurance for that employee. Proposal from insurance company is age and gender rated, so, for example, the premium to the employer for a 56 year old female employee is considerably more than for a 24 year old male employee. Assuming the employer has 15 employees, may it without running afoul of the federal discrimination laws charge the 56-year-old female employee 25% of the actual premium charged the employer by the insurance carrier for her single coverage and do the same for the 24-year-old male employee OR must the employer lump all single coverage employees together, add up the cost of their coverage, divide by the number of single employees, and charge 25% of that as the same flat charge to all single employees? I took it from TaylorJeff's reply that the employer could choose either way, but your reply seems to suggest a potential problem. Do you see one if the employer chooses the first way (which, by the way, seems the fairest)?

[Guest taylorjeff]

Tommy, What you're proposing is very common. I would say most employers with age/gender premiums charge the employee share based on the employee's actual premium or dependent's premium.

Keep in mind there are few discrimination rules that apply to insured plans. Those rules that exist apply to benefits provided and have nothing to do with what employees or employer pay for coverage. Take the view that the employer is offering to his employees a plan offered by the insurance company. The rates vary by age and sex. The employer has many legal options. He can carve out a group of executives and pay for their plan in full, and pay a smaller percentage of other employees. He can set a contribution based on length of service. He can pay for union only and nothing for non-union, (in which case they would be an ineligible class and not part of the participation calculation). He does have to meet the minimum participation and contribution guidelines of the insurance company.

He can also do what you're proposing, charge the employee a flat percentage of their own premium.

This will result in younger women paying more for their plan than young men and will result in older employee's paying more than younger employees. But, it is not discrimination.

It would be discriminatory to provide a lesser benefit based on either sex or (older) age.

[Don Levit]

Jeff:

What you are describing would be examples which may not prove to be discriminatory, when the benefits are defined for the group, and are the same for all the participants.

Would it be possible, and legal, for a firm to offer a "defined contribution" plan, in which benefits vary in direct proportion to the premiums paid?

Also, the following year, a portion of the unused benefits would roll over to the lower claims users.

In your opinion, would this be discriminatory?

Don Levit

[Guest taylorjeff]

Hi Don,

A few years ago, Unicare came out with a plan similar to what you're talking about. The employer could offer a high deductible plan with a low premium plus up to 3 more richer plans. The employer had to pay a minimum contribution, $100 or 80% of the low cost plan. The employees were responsible for the premiums in excess of the employer contribution, and their cost went up with each plan. Regarding your second question, the employer and employees could also choose to contribute to Unicare's "Complete Choice Health Fund" which would allow for the rollover of unused funds.

And to answer your third question, no, I don't think this is discriminatory.

Jeff

Jeff:

What you are describing would be examples which may not prove to be discriminatory, when the benefits are defined for the group, and are the same for all the participants.

Would it be possible, and legal, for a firm to offer a "defined contribution" plan, in which benefits vary in direct proportion to the premiums paid?

Also, the following year, a portion of the unused benefits would roll over to the lower claims users.

In your opinion, would this be discriminatory?

Don Levit

[Don Levit]

Jeff (and others);

Thanks for your reply.

Are you aware of any health plans, in which the benefits are standardized, but the deductibles vary in $5,000 increments, up to $50,000?

Would this be discriminatory, in that those with lower claims would tend to select higher deductibles?

Assume that an individual could change his deductible yearly.

Assume also that he can increase the deductible each year by $5,000, but not reduce it.

[Guest taylorjeff]

Hi Don,

Since your comments are pretty far afield from the original poster's question, I'd encourage you to start another post specific to your question. That way more folks will see your question and be able to reply.

Jeff

Jeff (and others);

Thanks for your reply.

Are you aware of any health plans, in which the benefits are standardized, but the deductibles vary in $5,000 increments, up to $50,000?

Would this be discriminatory, in that those with lower claims would tend to select higher deductibles?

Assume that an individual could change his deductible yearly.

Assume also that he can increase the deductible each year by $5,000, but not reduce it.