This bulletin is to provide information with respect to employer health coverage issues, including (a) changes enacted by recent legislation, and (b) employee status issues, such as qualification for small employer coverage for groups consisting of two individuals who are married. These issues have been the subject of numerous questions and complaints.
77th Legislature's Actions
The 77th Legislature enacted several bills that amended Texas Insurance Code (TIC) Chapter 26 or otherwise directly affect employer health coverage issued under the chapter's authority. Of those bills, this bulletin addresses HB 471, HB 949, HB 2146, and SB 990. Each of these bills takes effect on September 1, 2001. A short summary of each bill and related background information follow. A future bulletin will address other bills affecting employer health coverage issued under Chapter 26, TIC, as well as general life and health insurance issues. You may obtain copies of these bills at the "Texas Legislature OnLine" website at www.capitol.state.tx.us.
· HB 471 - Agent Commissions
Background - This bill amends Article 26.73, TIC, to clarify issues related to agent commissions addressed by bulletins on both the federal and state level: Health Care Financing Administration (HCFA) Transmittal No. 98-01 (http://www.cms.hhs.gov/default.asp), March 1998 (HCFA is now the Center for Medicare and Medicaid Services [CMS]), and Commissioner's Bulletin No. B-0046-98 (www.tdi.state.tx.us/bulletins/), June 22, 1998.
Summary - A small employer carrier may not implement (directly or indirectly) agent commission schedules that vary commissions based on the size of the small employer group or that otherwise reduces access to small employer health benefit plans. A small employer carrier may:
1. vary agent commission amounts or percentages based on group size if the variation is inversely related to the size of the group,
2. vary agent commission amounts or percentages based on the cumulative premium paid by a single small employer over a specific period if the variation in the commission is inversely related to the cumulative premium paid during the period, or
3. pay commissions as a percentage of premium charged to a small employer if the commission percentage is based on all premium paid by the small employer.
· HB 949 -- Small Employer Rates
Background - This bill codifies various portions of 28 Texas Administrative Code (TAC) Chapter 26, primarily 28 TAC §26.11(d), relating to variation of rates for small employer groups based on group size. This issue was also the subject of Commissioner's Bulletin No. B-0010-01, February 17, 2001 (www.tdi.state.tx.us/bulletins/).
1. Added definitions of "risk characteristic" and "risk load" to Art. 26.02, TIC.
2. Amended Article 26.31, TIC, to prohibit a small employer carrier from directly or indirectly using as a criterion for establishing a separate class of business the number of employees and dependents of a small employer or, except for coverage issued to one or more employer-based association groups, the trade or occupation of the employees of a small employer or the industry or type of business of the small employer.
3. Amended Article 26.32, TIC, to require small employer carriers to develop premium rates in a two-step process. The small employer carrier must first develop a base premium rate for each small employer group without regard to any risk characteristic of the group. The small employer carrier may then adjust that base premium rate by the risk load of the group, subject to other provisions of Chapter 26, TIC, to reflect the risk characteristics of the group. The amendment also requires the risk load assessed to a particular group to reflect the risk characteristics of that group.
4. Amended Article 26.33, TIC, to allow a small employer carrier to use the number of employees and dependents of a small employer as a case characteristic in establishing premium rates for the group. The highest factor associated with a classification based on the number of employees and dependents may not exceed by more than 20% the lowest rate factor associated with a classification based on the number of employees and dependents of a small employer.
· HB 2146 - Claims Information to be Provided to Employers
Background - The 76th Legislature added Article 26.96 to the TIC, requiring employer carriers to provide recent claims data to employers. While the Department has required all employer health carriers, small and large, to provide the required claims information to employers, the placement of this provision in the TIC (Subchapter H of Chapter 26, relating to large employer health benefit plans) prompted some carriers to question whether the law applied to small employer carriers. HB 2146, which added Article 21.49-19 to the TIC, resolves any question of applicability to small employer plans.
Summary - Article 21.49-19, TIC, defines group health benefit plans and applies to such plans issued to provide health benefits to employees of one or more employers that sponsor the plan. It requires that an issuer of a plan provide, upon request from an employer, claims cost information for employees covered by the plan during the preceding calendar year. The information must be reported by month and may either be provided in the aggregate or on a detailed basis but may not include:
1. any information through which a specific individual enrolled in the plan may be identified, or
2. diagnosis codes or other information through which a diagnosis of a specific individual enrolled in the plan may be identified. Information obtained by the employer by this law is confidential and may be used by the employer only for purposes related to obtaining and maintaining coverage for the employer's employees.
· SB 990 -- HIPAA Requirements
Background - SB 990 made technical changes to Chapter 26, TIC, to bring Texas law into compliance with provisions of the federal Health Insurance Portability and Accountability Act (HIPAA), federal rules adopted pursuant to HIPAA, and HCFA/CMS Transmittal No. 99-03 dated September 1999 (http://www.cms.hhs.gov/default.asp)(The transmittal). In addition to these HIPAA compliance changes, the bill expanded the exceptions to the definition of "late enrollee."
Federal Guidance: Transmittal No. 99-03 directed states to evaluate their laws and definitions, particularly the definitions of employee, eligible employee, and small and large employer, as well as guaranteed availability provisions. The transmittal clarified that:
1. Section 2791(e)(4) of the Pubic Health Service (PHS) Act defines a small employer as "any employer who employed an average of at least two, but not more than 50 employees on business days…" and Section 2791(e)(2) defines a large employer as "any employer who employed an average of at least 51 employees on business days…"
2. Section 2791(d)(5) of the PHS Act defines the term "employee" as having the meaning given under Section 3(6) of Title I of the Employee Retirement Income Security Act of 1974 (ERISA); that being "any individual employed by an employer." Under this definition, "employee" includes both full-time and part-time workers.
The transmittal says that any state law definitions that were less inclusive would violate HIPAA as it would omit employees who should be counted to determine if an employer was a small or large employer.
Preemption: Transmittal 99-03 further states that guaranteed availability of health insurance for small employers is one of the main protections provided under HIPAA. The transmittal also explained that the PHS Act generally preempts state law, but only when the state law "prevents the application of" group market provisions. The transmittal explained this practice with an example of an employer with 45 full-time employees and 20 part-time employees. Under federal law, the employer would meet the definition of "large" employer under the PHS Act and would thus be entitled to the protections of that Act (e.g. mental health parity). The employer would be a small employer in a state providing for counting only "full-time" employees, but since that status would qualify the employer for guaranteed issuance of coverage in the small group market, the PHS Act would not preempt the state law.
Guaranteed Issue: Another consequence of the importance that HIPAA places on guaranteed availability of health insurance for small employers is that a small employer carrier must accept every "eligible individual" who applies for coverage under the small employer health plan. "Eligible individual" means:
with respect to a health insurance issuer that offers health insurance coverage to a small employer in connection with a group health plan in the small group market, such an individual in relation to an employer as determined (a) in accordance with the terms of such plan, (b) as provided by the issuer under rules of the issuer which are uniformly applied in a state to small employers in the small group market, and (c) in accordance with all applicable State laws governing such issuer of such market. 45 CFR Section 2711(a)(2).
Summary of SB 990 changes to comply with the Transmittal and underlying federal law
1. Added to Article 26.02, TIC, a definition of "employee."
2. Changed the definition of "small employer" and "large employer" (to comply with federal law) from "two eligible employees" to "two employees" (Article 26.02, TIC), and made conforming changes elsewhere in the chapter (Articles 26.22, 26.23, TIC).
3. Amended Articles 26.06 and 26.81, TIC, to clarify that Chapter 26, TIC, applies to any health plan that is an employee welfare benefit plan.
Application of SB 990 changes to comply with the Transmittal and underlying federal law
A small or large employer carrier must count all employees to determine whether an employer is a small or large employer. For guaranteed issue purposes, however, the carrier is only required to issue coverage to eligible employees. For example: An employer with three part-time employees is considered a small employer, but a small employer carrier is only required to guarantee issue coverage to a small employer who has two eligible employees, and only if those two eligible employees elect to participate. Thus, unless at least two of the three employees are "eligible employees" under TIC Chapter 26, a small employer carrier would not have to guarantee issue coverage to the small employer.
SB 990 changes to comply with other HIPAA provisions
1. Deleted the phrase "and elects to be treated as a large/small employer" which modified certain state/county/etc. health plans (i.e. Articles 3.51-1, 3.51-2, etc.) because an employer carrier issuing coverage to one of these entitles must comply with HIPAA and Chapter 26, TIC; no election is allowed.
2. Amended the definition of "creditable coverage" under Article 26.035, TIC, to comply with HIPAA by adding a reference to short-term limited duration coverage.
3. Deleted the exclusion of small employer health benefit plans from Article 21.53F, TIC, (Coverage for Minimum Inpatient Stay in Health Care Facility and Postdelivery Care Following Birth of Child) to comply with HIPAA.
SB 990 change outside of HIPAA provisions - SB 990 expanded the exceptions to the definition of "late enrollee" to allow a child who loses CHIP or Medicaid coverage to enroll immediately in a small or large employer plan.
Qualification for Guaranteed Issuance for Small Employer Groups Consisting of Two Individuals Who are Married.
The department has received numerous questions and complaints regarding small employer carriers that are:
1. declining to issue small employer coverage to employers composed of two individuals who are married, or
2. attempting to frustrate or delay issuance of coverage to such employers by, for example, insisting the employer produce particular documents to substantiate group eligibility.
28 TAC §26.7(d) states that a small employer carrier shall not deny two individuals who are married the status of "eligible employee" solely because of that marital status. The rule further requires the small employer carrier to provide a reasonable opportunity for the individuals to submit evidence to establish each individual's status as an eligible employee. The reference in 28 TAC §26.7(c) to a W-2 Summary Wage and Tax Form serves only as an example of one form of appropriate supporting documentation and does not constitute a requirement. SB 990's definition of "employee" as "an individual employed by an employer" clarifies that the marital status of the employee, just like the number of hours usually worked, is irrelevant to the determination of whether an individual is an employee. As neither the TIC nor the TAC require an applicant to present a specific document to establish eligibility, a small employer carrier may not decline to cover an employer based on the employer's failure to produce a particular document.
A small employer carrier need not issue coverage to an individual who is not truly an employee, and the department understands that carriers may have concerns regarding coverage of ineligible individuals. Under 28 TAC §26.7(c) and (d), however, carriers must act reasonably in judging the various proofs offered to substantiate eligibility and in making eligibility decisions. Following are questions/documents that illustrate (but do not exhaust) the inquiries a carrier may pursue to substantiate eligibility:
- In what capacity is the employee/spouse employed?
- Does this employer or another employer employ the spouse outside of the home?
- What are the spouse's job duties and responsibilities?
- Is there any licensure requirement for the profession?
- Does the name of the spouse appear on loan agreements, invoices, business checks, articles of incorporation, assumed name filings, etc.?
- Does the name of the spouse appear on the sales tax license?
Sole Proprietors/Partners/Independent Contractors and Minimum Wage Requirements
The department continues to receive inquiries relating to coverage of sole proprietors, partners, independent contracts and employees who earn federal minimum wage. Small employer carriers should remember that unlike ordinary employees, a sole proprietor, partner or independent contractor is not required to work at least 30 hours per week on a usual basis to qualify as an "eligible employee." Pursuant to Article 26.02(9), TIC, if a small employer group has two employees (other than the sole proprietor, partner or independent contractor) who usually work 30 hours per week, the group is considered a small employer for guaranteed issuance and the sole proprietor, partner or independent contractor is also an eligible employee, even if he/she does not usually work 30 hours per week. Additionally, under Chapters 26 of the TIC and TAC, a carrier may not require that an employee earn the federal minimum wage to qualify as an "eligible employee."
ACTION BY CARRIERS
Each carrier should review its forms, rating structures, commission schedules, marketing and underwriting practices, and other procedures to ensure compliance with the above authorities. Carriers must take immediate action to implement changes required by recent legislation, as well as to correct any non-compliant practices, procedures, forms, and rates. TDI will investigate any incidents of alleged noncompliance and initiate appropriate administrative action.
If you have any questions regarding this bulletin or the requirements of Chapter 26, TIC, or Chapter 26, TAC, please contact the Life/Health Division at 512-322-3409 or HMO Division at 512-322-4266.
Senior Associate Commissioner
Life, Health and Licensing