In 1992, California passed Assembly Bill (AB) 1672, which expanded protections for small employers wishing to provide health insurance to their employees. AB 1672 was passed in an effort to make medical insurance more accessible to small employers through guaranteed availability and renewability provisions, underwriting protections, limits on pre-existing condition exclusions and disclosure requirements.
Covered Employers and Eligible Employees
AB 1672 applies to health insurance issuers and regulates health coverage offered to small employers, defined as employers who have two to 50 full-time employees. Small employers are not required to provide coverage to their employees. However, if a small employer offers coverage, it must make the coverage available to all full-time employees in order to be covered by the protections of AB 1672.
To be considered full-time, an employee must be a permanent employee who works at least 30 hours per week. Part-time, temporary and substitute employees are specifically excluded. However, the employer may also offer coverage to part-time employees who work 20-29 hours per week, if all part-time employees are offered coverage.
Guaranteed Availability and Renewability of Health Coverage
In California, insurance carriers cannot deny health insurance coverage to small employer groups because of health status, claims experience, industry, occupation, age or geographic location of employees. To be eligible for this coverage, a small employer must meet reasonable employee participation and employer contribution requirements, which are set by the insurance carrier. Generally, the following requirements apply:
· Employee Participation – At least 75 percent of eligible employees must participate in the plan.
· Employer Contribution – The employer must contribute at least 50 percent of the employee only premium.
Additionally, carriers are required to renew coverage for small employer groups at the option of the plan sponsor, except in the case of fraud or a failure to pay premiums.
California law limits an insurance carrier’s ability to charge low rates to groups whose members are in good health and high rates to those that include individuals in poor health. These protections operate by basing premium calculations on a “standard” rate that every carrier develops by taking certain allowable factors into account. Plans must set actual premiums no more than 10 percent above or below the standard rate. This creates a “rate band” within which the carrier may adjust employer rates for risk factors such as previous use of health services or industry type.
Carriers may establish standard rates based on only three specific categories: age, geographic location and family size. For example, a plan could develop one rate for a single employee aged 40 to 49 living in the Los Angeles area, and a different rate for an employee in the same age bracket who lives in Modesto and needs coverage for two children.
Pre-Existing Condition Limitations
California law also limits the ability of a health insurance carrier to use pre-existing condition exclusions. Specifically, insurers are limited to a one-time waiting period of up to six months for any pre-existing condition. This limit applies to all insured plans covering one or more California residents. If an enrollee had previous coverage, the new carrier must count that coverage toward the six-month period, provided the employee becomes eligible within 62 days of losing the old coverage.
Insurance carriers, agents and brokers are required to provide certain information to small employers about a carrier’s product offerings. Small employers must be given accurate and understandable information about the full range of benefit plans available, along with their options and rights. Each carrier must provide a summary brochure outlining all of its benefit plan offerings to allow employers to compare different plans.
Small employers must be given information about standard employee risk rates and the impact of the risk adjustment factor on calculating premiums. Once a premium is quoted, small employers have 30 days to purchase a policy at the quoted rate.
Carriers, agents and brokers are also prohibited from refusing or discouraging an application based on risk factors such as health status, claims history, industry, occupation or geographic location. In addition, plans and agents may not encourage employers with less healthy populations to purchase particular plans or products.