A Clean Bill of Health

Legal tips regarding employer-provided health insurance

Health insurance plans vary, with some being HMOs and other plans having high deductibles and requiring out-of-pocket costs. What should companies remember about the implementation of these plans to ensure compliance with applicable laws? Companies should make sure to provide proper notice to employees about the time period for open enrollment.

If an employee is going to deny coverage, make sure that the company has the denial in writing and that it is signed by the employee. Companies also must recognize that other qualifying events may permit an employee or their family member to enroll in the health insurance plan outside of the normal open enrollment period. Divorce and child support court orders may require that children be added to health insurance plans.

1. COBRA Notification

COBRA notices must be sent to employees upon a qualifying event, such as separation of employment or reduction from full time to part-time work. It is very important that a company have procedures in place to ensure COBRA notices are sent to the individual and that a copy of the COBRA letter sent is retained to demonstrate compliance with this law. Failure to properly send COBRA notices can result in daily fines and potential liability for medical expenses and costs.

2. Information Security

Companies need to control the access to medical files and should maintain medical files under lock and key. Health insurance information should not filter into employment decisions. The Health Insurance Portability and Accountability Act, or HIPAA, refers to confidential medical information in self-insured health insurance plans. The key question for an employer to ask to determine if information is covered by HIPAA is whether the company could possess this medical information if it did not have a health insurance plan. If the answer is yes, then the information is generally not governed by HIPAA. Leaves of absences or information about medical accommodations are not generally covered by HIPAA.

3. Nondiscrimination Rules

Finally, remember that nondiscrimination rules apply regarding health insurance plans. Under Section 105(h) of the Internal Revenue Code, a self-funded health plan cannot discriminate in terms of eligibility or benefits in favor of highly compensated employees (HCEs). The HCE group includes the top 25 percent of employees of the employer, ranked on the basis of compensation. Sometimes companies want to give one individual employee a better deal on health insurance premiums, but the company also needs to follow the nondiscrimination rules. The employer might be better off simply giving that employee some sort of cash or other form of retention award, which the employee can then use to pay his or her health insurance premiums.

Julie A. Pace is a partner with the national law firm of Ballard Spahr Andrews & Ingersoll. She can be reached at 602-798-5475 or at pacej@ballardspahr.com.