If you have a group-health policy, doctor, be aware that there are severe penalties for failing to comply with the requirements of the Health Care Portability & Accountability Act.
Chris D. Callen
For self-employed doctors, August 21, 1996, was an important day. That day, President Clinton signed into law the 63-page Health Care Portability & Accountability Act of 1997 (HIPPA). HIPPA went into effect nationwide on July 1, 1997. It affects all employers with two or more employees who maintain a group- or employer-sponsored health plan, regardless of how many employees are participating in the health plan. HIPPA legislation does not define "employer-sponsored plan." This responsibility has been left up to each state. Many states denote it as "directly reimbursing an employee" or even "making any wage adjustments" in order for an employee to purchase his or her own insurance!
The problem
Most doctors who have group-health policies are unaware that the law is in effect and, more importantly, that it affects them. The federal penalties for noncompliance are quite severe. Penalties to the violating employer are $100 per day for each employee who is out of compliance. The maximum federal tax for unintentional failures is the lesser of 10 percent of the employer`s cost for health insurance for the year or $500,000. Some states impose penalties as high as $10,000 for the first offense and $25,000 for subsequent violations.
HIPPA requires medical offices with existing group-health plans to offer major medical coverage within 90 days of employment to all new employees who work over 30 hours per week (25 hours in some states). The group insurer may not exclude coverage for any pre-existing condition if the employee enrolls within 62 days from the day he or she becomes eligible to participate in the health plan. After 62 days, the employee can be medically rejected and pre-existing conditions will not have to be assumed immediately. HIPPA also provides similar protection for eligible employees who are forced to buy an individual health policy if a group plan is not available with their new employer.
Although HIPPA went into effect on July 1, 1997, it gave all the states additional time to decide how eligible employees could obtain guaranteed-acceptance individual health insurance. Some states have elected to implement a statewide risk pool of standardized plans with set rates. Risk-pool policies typically have limited coverage, such as low lifetime maximums and high deductibles. They also are very expensive. The typical risk-pool policy has a lifetime limit of $500,000 and offers only $1,000 to $1,500 deductibles with coinsurance limits of 80/20 for the next $10,000. Cost for an individual could be as high as $350 per month. Many states are not offering a risk pool. They are requiring the insurers to offer guaranteed-acceptance individual policies with coverage for pre-existing conditions. However, most states have imposed no limits as to how much a company may charge for a guaranteed-issue HIPPA policy. A recent government GAO accounting report found insurance companies are charging 140 to 600 percent of the standard rate for individuals trying to convert their group insurance to individual coverage.
The anticipated overall cost increase of health-insurance plans due to HIPPA legislation has been estimated to be substantial. In many states, the cost of complying with state health-care-reform legislation is too great for the health-insurance companies. In several states, many companies no longer are offering individual health-insurance policies. There still will be companies offering individual health insurance, but at rates as high as $1,500 to $2,220 a month for family coverage! This leaves individuals in those states without the choice of taking less expensive individual-health insurance.
In order to be eligible for HIPPA provisions, a new employee must have exhausted all benefits offered under federal COBRA and state continuation laws. COBRA benefits pertain only to employers with 20 or more employees. Any new employee who has had previous group coverage for 12 months or more will have no pre-existing-condition exclusions with his or her new coverage. If your business is required to follow COBRA rules, you should consult a professional COBRA adviser as to how to comply with these extensive rules.
You need to be aware of a new requirement mandating that a terminated employee be given a certificate of coverage after he or she leaves your group-health plan. Any group that covers more than two employees is required to furnish certificates. Although the ultimate responsibility for furnishing the certificate lies with the insurer, this is a joint-liability concern.
The typical dental-office health policy normally covers the doctor (and his or her family) and employees who are not married. Normally, the business pays 100 percent of these premiums. The employees usually are responsible for paying the cost of insurance for any of their dependents. The remaining staff members usually are covered under their spouse`s policy.
Some of you currently are providing health insurance for yourself or staff by direct reimbursement to yourself or those staff members who purchase health insurance on their own. Under many new health-care- reform laws, making payments this way could make the plan an employer-sponsored plan and require you to follow state and federal health-care-reform rules. This would be impossible because there is no insurance policy in place. You also may run the risk of assuming the medical claims for any employee who was not offered the plan during the mandated time frame. I highly recommend conferring with your tax and legal advisers to determine how best to structure your health-insurance purchase and payments. I would be sure to get expert tax and/or legal advice about taking any tax deductions for personally purchased health insurance. It will be important to consider very carefully the option of taking tax deductions for health insurance if those deductions will subject you to any health-care-reform obligations.
Note that there still is controversy among many CPAs over whether or not a dentist should take the self-employment tax deduction for a health-insurance policy that the dentist pays for with a personal check. Although the payment is made personally, taking the deduction could require the dentist to comply with state and/or federal health-care-reform legislation. This would most likely occur if an uninsurable employee were to bring charges against the doctor for noncompliance and his or her tax records would need to be furnished. I am not a CPA and cannot tell a dentist what, or what not, to do regarding taxes and corresponding deductions.
Many doctors employ their spouses on a limited basis (usually to the extent of an annual IRA contribution) and have them purchase health insurance to get a 100 percent tax deduction for health insurance. Although this is permissible under the tax code, it may not be permissible under HIPPA and state health-care-reform legislation or insurance-company rules. This type of arrangement could put your policy into the employer-sponsored category.
The solution
When deciding on a health-insurance plan for you and your employees, you now have, generally, only three choices. Choice number two is the best solution, but may not be available for all offices.
(1) Keep your existing group plan and follow HIPPA, your state`s health-care reform as well as the insurance company`s rules. Generally, this is not a good choice because the cost to the employer is extremely high after your employees and their dependents are offered the coverage mandated by law and insurance-company policy. Additionally, there is high liability exposure from staff by maintaining a presence in a group- or employer-sponsored health plan. Most office-liability policies provide no coverage for any type of employee-initiated lawsuit that is benefit- or employment-related.
(2) Terminate your group policy and request that your employees (as well as yourself) obtain individual-health policies. However, this can happen only if everyone who currently is on the group policy is fully insurable on an individual basis. If someone has an uninsurable condition, then they may, in some states, end up without health insurance if the group plan is terminated. Staff morale could suffer. Maternity coverage generally is not available on an individual policy. The tax benefit to the employee is lost from having the employer pay for health-insurance coverage. FICA wages will increase for the employer if a wage adjustment is made. However, all of the increased cost is offset with the overall savings on the individual health policies. It is common to save as much as $1,000 a year per employee and as much as $3,500 a year for the doctor and his or her family by purchasing individual policies.
(3) You could get an individual health policy (nongroup) for you and your family while leaving eligible staff on the group policy. Usually, this is not a good choice as you must follow all the HIPPA, state and insurance-company rules. The cost and liability exposure from employees still is high.
If you are unable to terminate your existing group policy, I recommend that you consider the following strategy: To discourage staff participation, consider raising your current deductible to at least $1,000 and lower your co-insurance option to 70/30 of the next $5,000 or 50/50 of the next $2,000. Then, lower the percentage payment made on the employees to the insurance company`s minimum requirement. Usually, this is 50 percent, but sometimes it is as low as 25 percent. Keep in mind that you still will need to maintain a minimum number of individuals on the policy to keep it in force.
The last option to consider (other than selling your practice and moving to Canada where health insurance is free and life is simpler!) is a combination of the options. If you and your dependents are healthy, you could get off the group plan and apply for an individual policy. Any staff members who currently are on the policy could get off as well. Then, you would adjust the deductibles and co-insurance limits to discourage participation of new staff and keep the group plan only for those employees who currently are on the plan and are unable to purchase individual plans due to their health. This would have to be done in such a manner as to not limit the number of people on the policy to a level that would cause termination of the policy.
The best way to get the staff members off your policy is to inform and convince them that to stay on a group plan is dangerous, as they could lose their insurability. Also, they run the risk (if they have an uninsurable condition) of paying an extremely high rate of insurance for a policy if they ever had to leave their current position and seek employment elsewhere. When using this method of planning, once again, it is extremely important not to let the number of employees on your group policy fall below the minimum number of employees needed to keep the policy in force.
It is extremely important not to cancel any existing health-insurance coverage for yourself or your staff prior to obtaining health coverage elsewhere, because your insurability could be at risk.
It would be wise to consult with an attorney or competent adviser familiar with the health-care-reform law before starting or terminating a policy. This way, you will be knowledgeable about all the potential liabilities and penalties.
Finally, look carefully at the wording placed above the signature line on any individual health-insurance application. Most carriers` applications will contain verbiage such as: "I understand that the coverage for which I am applying is personal health insurance and cannot be used by any employer or self-employer to provide insurance for any employee including myself. I declare that the entire premium is paid by me personally. My employer is not contributing any part of the premium directly. I am not being reimbursed for any part of the premium by my employer whether by wage adjustment or otherwise, and my employer and I will not treat the coverage as part of an employer-provided health-insurance plan for any purpose, including tax purposes."
If language such as this is in a health-insurance application that you sign, be aware that the insurance company will hold you accountable for any HIPPA or state violations. Nonpayment of claims and potential refunding of premiums could result if the insurance company is ever put in a position to defend itself against a HIPPA violation.
Group coverage guidelines
To keep your group coverage and avoid any penalties, you should consider the following guidelines:
(1) Offer the health plan to every employee working over 30 hours per week within 90 days of employment. (In some states, the minimum requirement is 25 hours and 60 days.)
(2) Pay the same percentage for all employees and families, including you and your family. You should not have the business pay a greater percentage for your coverage than for the staff. However, you may be forced to pay for your dependent coverage with personal, after-tax dollars. You should not "mix and match" payments or benefits.
(3) Obtain signed waivers for all employees who refuse to take coverage. We use a blank application. Keep this waiver as your proof of offering coverage at the correct time.
(4) Offer life insurance only to those not taking health insurance if your policy requires the purchase of life insurance. Normally, company rules require you to offer it to all full-time employees. To keep your group policy from being terminated, be sure not to go below your group`s minimum number of employees.
(5) Many insurance companies now require that at least 50 to 75 percent of all full-time employees be enrolled for medical coverage, even if those staff members are covered elsewhere. Some insurers require you to furnish payroll records, so they can verify that everyone is being offered the group insurance coverage.
(6) In many offices, doctors will pay an adjustment wage to all staff members not covered under the group health policy. I do not recommend this action. It would be better to offer them the existing health policy, regardless of coverage with their spouses. If they elect not to participate, then, that is their decision and they should not be further compensated.
Follow the rules
To be sure you are following your group`s rules, you need to contact your group health-plan administrator and ask the following questions:
> What is the minimum number of employees that must remain on my policy to avoid cancellation?
> What is the minimum percentage of employees that must take the health-insurance portion of the plan? Some plans require at least 75 percent participation of all employees working over 30 hours per week, whether or not they are covered elsewhere.
> Do I have to offer life-insurance-only coverage to those who are not taking health insurance?
> Can I pay 100 percent for one employee and not offer the same percentage payment to others?
> Can I have my business pay and deduct for the cost of insuring my family and not make the same offer to the other employees?
> Can my group be singled out for rate increases or cancellation due to a major claim? If the answer is "yes," you will want to consider the ramifications of keeping your group, knowing that all new employees and their dependents will be eligible for your plan within 60-90 days (each state differs), regardless of their medical history.
> Can I offer dependent coverage to my family and not offer the same coverage to employees?
> What payment alternatives are available? When am I allowed to make changes to my policy?
> Is my group policy taking all new add-ons without medical information, as well as providing coverage for pre-existing conditions in compliance with HIPPA?
> What "conversion" policy might be available to all participants when a policy is terminated? Request a printout and a sample policy. A conversion policy would allow "sick" employees the option to continue coverage on an individual basis without needing to purchase a new policy.
> Does the group policy allow for split-deductibles? In other words, can I have two separate deductibles within the same policy? If so, then you would take a higher deductible and your staff members would keep a lower deductible. This could save you a significant amount on an annual basis.
> (If applicable) Is it permissible to add my spouse to the policy as an employee to get a 100-percent tax deduction for my health-insurance cost? This would be for those offices in which the spouse is not really a full-time employee.
> Is it permissible (in your state) to terminate a group health policy and have everyone get individual policies via a wage adjustment?
Resources
1. A concise summary of the HIPPA legislation presented in an easy-to-read format - http://www. gcwf.com/articles/health. htm
2. A complete list of every state insurance department, along with addresses and insurance-counseling program numbers - http://members.aol.com/elderltc/ins_dept.htm
3. The author`s business web site, which will be updated periodically with health-care-reform legislation articles. Links to related web sites and state insurance updates will be offered as well - http://cdcallen.com
4. A firm that advises clients, for a fee, on how to comply with COBRA and HIPPA - Cobra Compliance Systems Inc., (800) 300-3838.
