Employee benefits are such a common part of the
workplace terrain today that many assume these benefits are required by law.
But generally, the decision about whether or not to provide such benefits is up
to you.
Even though providing benefits is largely optional,
enlightened employers generally do offer some type of benefit package. Offering
benefits can reflect your commitment to keeping a satisfied workforce and can
help you remain competitive in attracting competent workers.
Because the federal tax laws allow an employer to deduct
the cost of many employee benefits as a business expense, the financial burden
of providing these benefits is greatly reduced. Benefits that qualify for
favorable tax treatment include health and dental coverage, term life insurance,
disability insurance, approved pension plans, educational assistance programs
and dependent care assistance. But if a benefit plan is rigged to favor the
owners of a business or employees who receive the highest compensation, the
plan may not qualify for a tax deduction.
If you opt to provide healthcare coverage or pension
plans, federal laws may impose requirements on these plans.
Employees Can Help
You Plan
In putting together a benefit program, consider taking a survey of
employees or setting up a committee of several of them to recommend the
benefits they’d most like to have. Then, after exploring the options and
deciding on the benefits you’ll offer, communicate that decision—and your
reasons for the choice—to the employees.
Perhaps some employee suggestions will be too expensive or even
impossible to adopt. Others may be left to reconsider in a year. Whatever the
situation, when employees go to the trouble of making suggestions, they need to
know that their suggestions are taken seriously.
Copyright
© 1999-2001 Nolo.com All Rights Reserved
(top of page)
A. Healthcare Coverage
Healthcare coverage is the
benefit most employees covet. Medical treatment is expensive today and it’s
difficult for an individual seeking coverage to find some that’s affordable. Of
course, employees enjoy the greatest benefits if the employer foots the entire
bill. But even if an employer pays none of the cost of coverage—or just a part
of it—the employee benefits by being able to participate at relatively low
group rates.
Providing healthcare coverage is optional for employers.
Hawaii is the sole exception. Its Prepaid Healthcare Act (§393-1 and following
of the Hawaii Statutes) requires employers to provide coverage to every
employee who earns a monthly wage of at least 86.67 times that state’s minimum
wage—$5.25 an hour.
1.
Types of Coverage
Traditionally, employers
who have provided healthcare coverage have done so through an indemnity or
reimbursement plan which pays the doctor or hospital directly, or reimburses
the employee for medical expenses he or she has already paid. Blue Cross/Blue
Shield is a traditional type of plan.
While traditional coverage allowing employees to seek out
their preferred medical provider is still widely used, a growing number of
employers today provide coverage through the alternatives of a health
maintenance organization (HMO) or a preferred provider organization (PPO).
An HMO is comprised of hospitals and doctors who provide
specified medical services to employees for a fixed monthly fee. Within the HMO
service area, covered employees must use the HMO hospitals and doctors unless
it’s an emergency or they receive permission to go elsewhere.
A PPO is a network of hospitals and doctors who agree to
provide medical care for specified fees. Often the network is put together by
an insurance company that also administers it. Employees usually can choose
between using the network’s hospitals and doctors or going elsewhere.
2.
Making the Best Choice
If you choose to provide
health insurance coverage to employees, explore all the alternatives: group
health insurance policies, HMOs and PPOs. Until you compare, you won’t know
which arrangement will be least costly to both your business and the employee.
Under some plans, employees pay for a portion of their
medical expenses—usually called copayments. The theory is that employees will
seek only essential treatment if they’re paying some of the cost.
Your business must decide on who will pay the monthly,
quarterly or semi-annual premium for healthcare coverage. Among the choices for
who pays the tab:
• Your business can pick up the full amount.
• You can split the cost of premiums with the
employee—perhaps paying 80% and having the employee pick up the other 20%
through a paycheck deduction.
• You can pay in full for the employee’s
coverage, but require the employee to pay the extra cost of covering his or her
dependents.
• You can require the employee to pay the
entire charge—although that won’t be perceived as much of a benefit by the
employee even though the group plan will undoubtedly be cheaper than individual
coverage.
Another way to shift some costs to the employee is through
a deductible plan which requires the employee to pay a specified amount of
medical bills each year—$500, for example—before the plan’s coverage kicks in.
Consider Flexible Coverage Arrangements
Depending on where
your business is located and the number of employees in it, you may be able to
offer several different choices of coverage to employees. For example, some
employers opt to pay 100% of coverage under an HMO. If their particular HMO
doesn’t require all employees to join, some employers allow those employees who
wish to do so to buy their own coverage. Then the employers reimburse them at
the HMO rate. Depending on the required copayments, deductibles and other plan
features, employees who select a different plan may pay a bit more or less than
the HMO rate.
You should decide, too, whether to cover employees who
work part time. You might, for example, provide full benefits for those who
work 30 hours or more per week, and prorated benefits for those who work at
least 20 hours but less than 30. Such an approach may help you qualify for
cheaper group rates.
Children May Have Rights, Too
If you have a group
healthcare plan, a child of a divorced employee may have a right to coverage—even
if the child doesn’t live with the employee or isn’t a financial dependent of
the employee. An employee’s child will be covered if a domestic relations
settlement agreement or a court order requires such healthcare coverage and
contains specific information required by ERISA. If you receive a copy of such
a settlement agreement or court order and are unsure about what to do, check
with the plan administrator or an employee benefits lawyer.
3.
Coverage Limitations
The Americans With
Disabilities Act (ADA) is designed to eliminate workplace discrimination
against people with disabilities. The ADA doesn’t require you to offer
healthcare benefits to employees, but it does require you to give people with
disabilities the same healthcare benefits you offer to others. If your business
is covered by the ADA, you may not deny insurance coverage or limit benefits
based on a worker’s disability.
Your plan will usually violate the ADA if it excludes
specific disabilities, such as deafness, AIDS or schizophrenia. Similarly, it’s
generally illegal to exclude groups of disabilities—for example, cancers,
muscular dystrophy and kidney diseases—or to exclude all conditions that
substantially limit a major life activity.
Some insurance restrictions that may at first seem to
discriminate against disabled workers are allowed under the ADA.
a. Physical
condition restrictions
Healthcare plans often
provide more liberal benefits for treating physical conditions than for
treating mental and nervous conditions. Similarly, some plans provide fewer
benefits for eyecare than for other physical conditions. These broad
distinctions are allowed by the ADA. They may have greater impact on some
people with disabilities, but they’re not intentionally discriminatory.
b. Preexisting
conditions
There are limits on your
ability to offer a healthcare plan that doesn’t cover preexisting conditions. A
healthcare plan will violate the ADA if it excludes specific preexisting
conditions such as blood disorders. In EEOC parlance, such exclusions are
“disability based” and therefore not permissible.
A health insurance portability law—in effect since
mid-1997—further limits your right to exclude preexisting conditions in any
healthcare plan that you provide to employees. That law provides that any
exclusion for a preexisting condition:
• must relate to a condition for which the
employee received medical advice or treatment during the six months before the
employee’s enrollment date
• cannot last for more than 12 months—18 months
for late enrollees—after the employee’s enrollment date, and
• cannot include pregnancy.
c. Treatment restrictions
A plan that doesn’t cover
experimental drugs or treatment or that excludes elective surgery doesn’t violate
the ADA. Similarly, it’s not a violation to put a monetary cap on certain types
of treatment—for example, to limit payments for X-rays or blood
transfusions—even though such a cap may adversely affect people with certain
disabilities.
The U.S. Equal Employment Opportunities Commission (EEOC)—the
agency that enforces the ADA—has issued guidelines to help employers determine
if a healthcare plan meets the ADA requirements. To order the Interim
Enforcement Guidance on the Application of the ADA to Disability Based
Provisions of Employer Provided Health Insurance, call the commission's
publications ordering office at 800-669-3362.
Discrimination in
Group Health Plans
Under federal law, a group health plan can’t discriminate in
eligibility for coverage or premiums based on an employee’s:
• health status
• medical condition
• claims experience
• medical history
• genetic information
• evidence of insurability, or
• disability.
This list
applies to the employee’s dependents as well.
But the law doesn’t require a group plan to cover any given
procedure—and a group plan may limit the level of benefits it provides, as long
as the plan doesn’t discriminate among similarly situated employees.
4.
Continuing Coverage for Former Employees
A federal law called the
Consolidated Omnibus Budget Reconciliation Act or COBRA (29 U.S.C. §1162)
applies to your business if you have 20 or more employees and you offer a group
healthcare plan. If COBRA applies to your business, you must offer employees
and former employees the option of con-tinuing their healthcare coverage if
their coverage is lost or reduced because:
• their employment has been terminated for any
reason—except gross misconduct
• their hours have been reduced, or
• they’ve become eligible for Medicare.
Members of the employee’s family must also be given the
opportunity to continue their coverage. The chart below depicts the
circumstances—qualifying events—that trigger an employer’s obligation to allow
continuing healthcare coverage under a group plan. COBRA gives rights to
different people, depending on the qualifying event. How long the benefits must
be continued is determined by the qualifying event and whether the covered
employee is disabled.
continuing coverage for former employees
Qualifying Event People
Entitled to Continue Coverage How
Long
The
employee quits or retires Employee,
spouse, dependents 18
months;
29
months for disabled worker
You fire
or lay off the employee for Employee,
spouse, dependents 18
months;
reasons other than gross misconduct 29
months for disabled worker
You
reduce the employee’s hours Employee,
spouse, dependents 18
months;
so he or she loses coverage 29
months for disabled worker
The
employee dies Surviving
spouse, dependents 36
months
The employee divorces or Former spouse, dependents 36 months
becomes legally separated
The employee goes on Medicare Spouse, dependents 36
months
A dependent loses coverage Dependent 36
months
through marriage or age
The
employee must pay for continuing coverage under COBRA, including both your
share and the employee’s share. You can charge 102% of the premium cost—using
the extra 2% to cover administrative costs. The cost to the employee or the
employee’s family for continuing coverage must be similar to the cost of
covering people still on your payroll.
COBRA
covers HMO and PPO plans in addition to traditional group insurance plans.
COBRA also covers all other types of medical benefits, including dental and vision
care and plans under which an employer reimburses employees for medical
expenses.
If your business is covered by COBRA and has a group
healthcare plan, the plan administrator—the person who handles the plan’s
paperwork—must give employees and their spouses a written explanation of their
COBRA rights when they first become eligible to participate in the plan. A
single notice can be sent to an employee and spouse if they live at the same
address. Otherwise, the spouse is entitled to a separate notice.
Help Is Available
Small businesses
usually find it convenient to let the insurance company serve as the plan
administrator and coordinate COBRA notices. The insurance company can provide
even more help and information, including a clear explanation of how the plan
meets the requirements of COBRA and similar state laws. Any reputable company
should be able to provide clear, concise explanatory materials that you can
hand out to your employees and, if asked, may send representatives to conduct
training seminars and answer employee questions.
When a qualifying event occurs that gives an employee or
family member the right to continue coverage, you must notify the plan
administrator within 30 days. The plan administrator then has 14 days to notify
the beneficiaries of their rights under COBRA. These beneficiaries have 60 days
following the notice to let you know if they want to continue their coverage.
If so, the employee or eligible family member sends you the premium each month
and you send it on to the insurance company. If the beneficiaries don’t send
the payment when due—or within the grace period—you can cut off coverage.
Several states also have laws giving former employees the
right to continue group healthcare insurance coverage after leaving a job.
These state laws generally require continuation of healthcare plans that
provide benefits through an insurance company such as Blue Cross/Blue Shield.
They don’t, however, require continuation of a self-insured plan—even one
that’s administered by a commercial insurance provider. Some of these laws
cover smaller employers than COBRA does.
Additional Laws May Apply
If the chart below
indicates that your state has no statute, this means there is no law that
specifically addresses the issue. However, there may be a state administrative
regulation or local ordinance that does control. Contact your state insurance
commission or state labor department for more information.
5.
Reducing Costs
Small businesses often
feel overwhelmed by the spiraling costs of providing healthcare benefits to
employees. But there are some steps you can take that may hold down costs,
mostly by eliminating unnecessary medical expenses.
Look for a healthcare plan that practices managed
care—requiring participants to get a second opinion before they have surgery or
requiring pre-approval by the insurance company for expensive diagnostic
procedures.
Requiring employees to pay a part of the monthly coverage fee
as well as a portion of each medical bill may encourage employees to be
judicious in seeking treatment.
Look into offering coverage through a Health Maintenance
Organization (HMO) or Preferred Provider Organization (PPO) instead of
traditional insurance or reimbursement coverage. But be sure to shop around to
see if the overall cost of a PPO or HMO plan is really lower than traditional
coverage.
Money put into preventive care is well spent. You can, for
example, call in experts to teach employees the benefits of a healthy diet,
exercise and preventive care. Beyond that, you can set a good example by making
low-fat food available in your lunchroom and installing exercise equipment in
an unused area of the workplace. Also consider paying for seminars to help
employees quit smoking and encourage periodic physical checkups—perhaps
offering to pay part of the usual deductible payment
6.
Medical Savings Accounts
If you are an employer with 50 or fewer employees, you can
offer to your employees the option of opening a medical savings account (MSA).
An MSA is a tax-exempt trust or custodial account in which an employee can save
money for future medical expenses. The employee uses the account in conjunction
with a high deductible health plan to meet his or her health care needs.
This type of account offers employees several benefits,
including the following:
• The money in the MSA grows tax-free.
• Employees can claim a tax deduction for the
contributions that they make to their MSAs.
• The contributions remain in the employee’s
MSA until the employee uses them.
Unfortunately, Congress established the MSA program as a
pilot program with an expiration date of December 31, 2000. Unless Congress
acts to change the law, no new MSAs may be established after this date. As this
book went to press, bills to expand and extend the MSA program were pending in
Congress, but it is impossible to predict whether they will be enacted.
If you’re interested in establishing an MSA after 2000,
you need to determine whether the program has in fact been extended and what
the current eligibility requirements are. Contact an insurance agent or broker
who handles health insurance. You can also find a directory of companies that offer
MSA on the Health Insurance Association of American website at
http://www.hiaa.org. Call one or more of these companies to
see if they are still offering MSAs.
Coverage for
Pregnant Women and Older Workers
Federal law provides some special insurance requirements for
pregnant women and older workers.
Women. You must treat women affected by
pregnancy and related conditions the same as other employees based on their
ability or inability to work. For example, if a woman can’t work because she’s
pregnant, you must provide her with the same healthcare coverage as you
generally provide to employees who become ill or have a disability. The Family
and Medical Leave Act allows workers to take up to 12 weeks a year of unpaid
leave connected with childbirth, adoption and foster placement.
Older Workers. You must offer
workers age 40 and older the same healthcare coverage you offer to younger
workers—and, if your plan requires that all your workers be covered, you can’t
make older workers pay more to join. But if the insurance isn’t mandatory,
older workers can be charged more, so long as actuarial charts show their
healthcare costs are higher.
Copyright © 1999-2001 Nolo.com All Rights Reserved
Excerpted
from the “The Employer’s Legal Handbook”, by Fred S. Steingold
