Coverage Requirements for Illinois Group Health Insurance Policies

[401 Chaos]

Does anyone have general experience with general coverage / underwriting requirements for group health insurance policies subject to Illinois insurance regulations? We are doing some due diligence on a target company that has 200+ full time employees--about 10 salaried employees and nearly 200 hourly paid employees. They appear to have a small employer group health policy with Aetna that covers only a handful of employees--all among the salaried employees. Their broker has indicated that the policy limits coverage just to salaried employees--i.e., that the term "full-time employee" for group health plan purposes only includes "salaried employees" so no need to offer or extend coverage to the 200 hourly-paid employees. Everything I've seen, however, suggests that Aetna policies in Illinois generally require group coverage to be offered to all employees (meaning anybody that is a common law employee) that works 25 or more hours per week. (Although the Aetna underwriting summary suggests that the 25 hour standard may be increased or raised, I've seen no indication that Illinois law or the Aetna underwriting rules would permit an employer to exclude all full-time employees paid on an hourly basis and have never other rules designed that way.) Even if that were somehow true, I cannot see how they could qualify for small employer coverage as the Illinois small employer rules seem to make clear that the 50 or less threshold is based on broad full-time employee count without regard to salaried vs. hourly. Thanks for any assistance anyone is able to provide.

[401 Chaos]

Just to add a bit more information to my own post, I spoke with a representative from Aetna's underwriting department who informed me that although Aetna generally sets a minimum requirement of 25 hours per week in order for an employee to be considered a full-time employee for purposes of being eligible for coverage under an Aetna group health plan, there is no maximum standard required by Aetna or apparently by Illinois law. As such, an employer that has a large work-force with hourly paid employees working 35-40 hours per week could set their own threshold for hours per week at say 41 hours per week thereby excluding all but a few select salaried employees that generally work 40 or more hours per week. In short, the employer is generally free to set the threshold as high as they wish but they cannot set the threshold at less than 25 hours per week, The fact that a number of the employees working 37 hours per week are generally considered "full time" for other employment or company classification purposes does not seem to be binding on the group policy coverage.

I'm not sure how this works in most states but I found this interesting as I am accustomed to states that basically do just the opposite--generally require you to cover all employees that work at least a certain amount (e.g., 30 hours per week) and generally permit you to cover part-time employees at lower hours (e.g., 20 hours per week) if requested as part of the group policy. Does what we've been told about Illinois not having any cap on the hours per week required to get group coverage seem correct?

[GBurns]

I see 2 thing that would concern me:

1. The requirements of ACA.

2. Illinois insurance statutes.

Both of these require expert legal advice, which I do advise because Illinois has very poorly written laws.

In the meantime< I suggest that you look at the statutes : http://www.ilga.gov/legislation/ilcs/ilcs2.asp?ChapterID=22

[401 Chaos]

GBurns, thanks very much. I certainly agree the Illinois laws are fairly poorly written. Unless I am missing it, I have not found anything in the Illinois statutes or regulations that attempts to set a threshold minimum number of hours for establishing full time classification. The statutes just seem to leave it up to the individual plan to set those terms. That is very different from what I'm accustomed to so wanted to be sure I was not missing something. According to both the Aetna underwriting department as well as the insurance broker, however, this is presumably fine. In our particular case, the company apparently decided not just to set the standard at 40 hours per week but also requiring that the employees be salaried employees as well (i.e., they have large numbers of essentially full-time hourly paid employees working 40+ hours per week that are excluded from group coverage reserved just for the handful of salaried employees.

[GBurns]

I think that this issue is now controlled by ACA.

Under ACA which was adopted by Illinois, the standard for full-time is 30 hours.

As for excluding hourly paid employees, I think that the potential for penalties should dictate legal advice.

[401 Chaos]

Thanks very much. I agree ACA governs stuff moving forward but we are trying to assess potential liabilities for prior coverage issues and working with lawyers to do that. The lawyers have never seen such exclusions before but the guidance / standard from Illinois Department of Insurance is very thin. We have been told repeatedly, however, that such classifications / exclusions are done routinely under Illinois group policies without issue so was just hoping others out there might have some additional insight on whether or not that is true. I'm not sure there is a clear answer as a matter of law at this time but if it is the case that others do this all the time without incident that would be helpful to know.

[GBurns]

I would get copies of the application and the Underwriting Guidelines in use by not only Aetna, but also BCBS. Those should be able to document the norm in the past.

If there is a section 125 cafeteria plan involved, you might want to look at the issue of discrimination regarding the exclusion.

[lvena]

Keep in mind that I do not have any of the documents to review, and I am not familiar with Illinois law. It is very possible for this to occur, through use of a carve-out group. Carve-outs are usually structured around DOL approved groups, such as; salaried/non-salaried, union/non-union, etc. Or perhaps the non-salaried group is offered coverage through another offering. Often times the carrier will look at the size of the eligible class (carve-out) and assign it to the large or small based on that number.

GBurns and you are correct that this now needs to be viewed through the ACA requirements. But even with ACA, this situation could still persist.

Hope this helps.

[401 Chaos]

Thanks again for everyone's assistance. Very helpful. Just to close the loop on this a bit, I got copies of the application and the Aetna underwriting guide (have not gotten a copy of the BCBS underwriting guide yet). As you might imagine, the provisions are a bit vague.

Specifically, the Aetna Illinois underwriting guideline provides the following regarding Employee Eligibility:

“Eligible employees are those who work for the employer on a full-time basis, with a normal work week of 25 or more hours, including partners, proprietors if included as an employee under the employer’s health care plan. Eligible employees will NOT include part time, temporary, substitute, 1099 or seasonal employees. Coverage must be extended to all employees meeting the above conditions, unless they belong to a union class excluded as the result of a collective bargaining arrangement. . . . If an employer’s Employee Eligibility Criteria definition differs from the above definition (more than 25 hours), the employer’s actual definition must be provided in writing on the Employer Application. Note, the normal work week cannot be less than 25 hours.”

The group policy provided also includes a helpful provision which notes that the eligible employees basically include those satisfying the eligibility requirements established by the employer. So it seems they specifically permit the employer to set higher hours per week requirements from the default 25 hours per week requirement and possibly other criteria but there is little to no guidance on whether those other criteria might include carve outs of other groups (i.e., all hourly employees) and/or any limits on the maximum number of hours.

The Application originally completed is also less than clear on the parameters of setting exclusions, etc. In one spot, they ask "What is the normal work week you require a full-time employee to work to be eligible for coverage?" Then, down below that line is another that asks "Are there excluded classes of employees other than part-time and temporary employees (for example, Union employees)? If yes, describe class(es) and/or the union local name and number." In the case of our employer, they failed to complete the box asking for the number of hours per week. Then, in the line asking for excluded classes, they noted "Part-time / seasonal" which really does not make much sense given the question. The application was signed off on by the broker and the employer. Then, a week later, the broker wrote a letter to Aetna to clarify the eligible employee criteria included in the application. (Again, seems this could / should have all been set forth in the application itself so unclear why that was not done.) In any event, the letter notes that the only "full-time" employees of the company are those who are on salary. All others are considered part-time / seasonal employees and thus not eligible for benefits. Employees must work 40 hours a week on a consistent basis through out the year to be considered full-time.

All that seems perhaps okay and permissible within the grand scheme of the underwriting policy and application but I think it really paints a misleading picture for Aetna. In essence, the broker says the letter was intended to make clear that only salaried employees can be considered full-time employees even though there are several hourly employees that routinely work 40+ hours on a year-round basis. In short, they basically excluded all hourly employees but did not clearly explain this to Aetna. Given the underwriting guidelines, etc., it seems such an exclusion or carve out may be permissible but just wasn't clearly explained to Aetna. I'm really at a loss to say what the risks of such a misleading application / criteria are at this stage.

Forgive the extended discussion here but just wanted to try and close the loop in case helpful to anyone else. Forgive also the soapbox but I think this combination of mumbo jumbo / hide the ball sort of insurance rules and broker confusion is a big part of what has led us into ACA mandates.