Small Group Health Insurance in California Myth Busters: Employee Participation and Employer Contribution

Business owners wishing to start a group health plan for their employees often face the same pressure: how to offer a health plan while not bankrupting the company. Group health insurance in California can be expensive and it is difficult for a business owner who has a successful business with no health insurance to begin paying $2 – 3,000 per month for coverage when they have been successful without that expense.

Many business owners with one or two employees often mistakenly believe that they can have a low cost group plan and not include employees. Here are some myths and realities of California health insurance for small businesses.

Myth 1: A business with only one or two employees can have a group plan that covers the owners of the company only.

Often, business owners with only one or two employees are more interested in meeting their own family’s health insurance needs and consider setting up a group health plan because the business owners can not qualify for an individual health insurance plan due to pre-existing medical conditions. In this case, the business owners would prefer to only cover themselves and wish their employees would decline coverage.

Reality: AB 1672, the California State law that regulates small group health insurance (California Insurance Code Section 10702-10718.7), states that a minimum of 75 percent of the eligible employees (those working 30 hours per week or more) must enroll in the group health plan. Employees covered by a spouse’s other group coverage can opt out and this will not effect the participation requirement. Without this requirement, the insurance companies realize that people with medical conditions would be more likely to enroll rather than healthy people. It prevents “adverse selection” where people more likely to make claims have an incentive to enroll.

Myth 2: A business can offer a group health plan and have the employees pay 100 percent of the monthly cost or premium.

Some employers perceive that offering a group plan where employees pay all of the expense is an example of their generosity towards their employees. These employers believe that group rates are less expensive than individual health insurance and that they can “help” their employees by “offering” a group plan.

Reality: AB 1672 requires that employers pay a minimum of 50 percent of the employee only cost of the insurance. This is referred to as “employer contribution.” Also, there are some “defined benefit” arrangements where employers can pay as little as $100 per month instead of a fixed percentage. If the employer contribution requirement were not in place employers would likely pay very little of the employees’ premium (as they usually pay nothing for dependents). No employer contribution would make the participation requirements (myth 1) difficult to achieve.

So, if a business owner wants to establish a group plan and get the safe guards of the following:

  1. Guarantee issue (accepting everyone regardless of pre-existing medical condition);
  2. Lower health insurance rates; standard benefits; year long rate guarantees;
  3. Guaranteed renewal (can not be cancelled by the insurance company);

Then the business must pay for their employees’ health insurance and make sure that most of them enroll.

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