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NJ Small Employer Health Benefits Program Buyers' Guide
|SEH Program Features for Health Benefits Plans
SEH Program Features for Health Benefits Plans
All small group health benefits plans must meet certain minimum requirements that are “SEH Program features.” Small group health benefits plans must:
- Be guaranteed issue;
- Be guaranteed renewable;
- Comply with restrictions on the use of pre-existing condition limitation clauses;
- Comply with restrictions on rating criteria and standards;
- Include rights of coverage continuation for members of groups not governed by COBRA; and
- Be standard plans (at the option of the employer, such plans may include one or more riders offered by the carrier in the SEH market).
A carrier may not refuse to issue a small group health benefits plan to any eligible small employer or any member of the group for which the small employer is purchasing coverage because of anyone’s health, prior claims experience, age, gender, occupation, nature of the business, or the location of the business in New Jersey.
In general, a small employer may continue to renew a small group health benefits plan at the discretion of the small employer.
A carrier may nonrenew a small employer health benefits plan ONLY if:
- The employer fails to provide the completed Annual Certification as required;
- The employer ceases to be eligible because it no longer has at least 2 eligible employees;
- The small employer is no longer eligible because it fails to meet contribution requirements or fails to meet participation requirements; or
- Following the approval of the Commissioner of the New Jersey Department of Banking and Insurance, the carrier withdraws the health benefits plan from the small employer market.
In addition, if the small employer has obtained coverage through membership of the business entity in an association, the carrier may nonrenew the health benefits plan if the business is no longer eligible for the association membership, or the small employer chooses to discontinue membership. Nonrenewal occurs only upon the anniversary date of the coverage and only after appropriate notice is provided to employers.
When a small employer grows to more than 50 eligible employees, the carrier will renew the small employer policy at the employer’s request, but the premiums may no longer be the carrier’s SEH market rates. If the employer changes the policy in any way, the employer loses the protections (and restrictions) arising from small employer status entirely. So, the carrier will offer the employer different policies and riders using different rating methodologies, and might apply different participation and different contribution requirements to the employer.
Of course, regardless of the employer’s status, a carrier may terminate the coverage if the employer fails to pay premiums timely or has acted fraudulently or intentionally made material misrepresentations of information relevant to the issuance of the health benefits plan. Termination can occur immediately.
Restrictions on Pre-Existing Condition Exclusions and Limitations
A “pre-existing condition” is an illness or injury existing before an individual obtains health coverage. Sometimes carriers limit coverage for treatment of a person’s pre-existing conditions. However, New Jersey and federal law restrict how carriers may use pre-existing condition limitations in the small group market.
Specifically, the SEH Program Act does not allow carriers to look back more than 6 months at a person’s medical or treatment history for purposes of limiting coverage, and does not allow a carrier to consider any condition as pre-existing unless the condition was actually diagnosed or treated, or treatment was recommended or prescribed medications were taken for the condition. And under no circumstance may a carrier consider a pregnancy to be a pre-existing condition.
- State law prohibits the application of pre-existing condition limitation periods to any members of a small group with 6 to 50 eligible employees, except in the case of late enrollees;
- State law prohibits the application of a pre-existing condition limitation period to groups of 2 to 5 eligible employees for more than 6 months following the enrollment date in the health benefits plan;
- State law prohibits the application of a pre-existing condition limitation period to late enrollees for more than 6 months following the effective date of the late enrollee’s coverage;
- State law prohibits the application of a pre-existing condition limitation period to late enrollees altogether when 10 or more late enrollees ask to enroll in a small employer’s group health plan within the same 30-day period;
- Federal and state law prohibits the application of a pre-existing condition limitation period to children and federal law prohibits the application of a pre-existing condition limitation to anyone under the age of 19 years old; and
- Federal law requires carriers to reduce a pre-existing condition limitation period applied against a person by the amount of time that the person had prior creditable coverage, not including periods of time occurring prior to any lapse in coverage of more than 90 days.
Note that when a pre-existing condition limitation period applies to a person, the limitation has no impact with respect to treatment of illnesses or injuries that are not related to the pre-existing condition(s).
The initial offer of coverage to an employee must include at least a 30-day enrollment period. After the initial enrollment period, an employee may still enroll (along with his or her dependents) – there is no requirement to wait for an open enrollment period – but the employee and dependents may be considered late enrollees. Late enrollees become subject to a pre-existing condition limitation period (not to exceed 180 days) that might not have applied had the employee enrolled when coverage was initially offered. There is an exception for late enrollees who are under the age of 19 because they are never subject to a pre-existing condition limitation.
However, not all “late” requests for coverage result in employees or their dependents being considered late enrollees. An employee and/or his or her dependents will not be considered late enrollees if:
- The employee initially waived coverage because coverage was available through another employer plan, and s/he seeks coverage under the small employer plan within 90 days following termination of coverage under the other employer plan;
- The employee or dependent had coverage under a COBRA continuation provision and, within 30 days after exhaustion of the COBRA right, the employee requests enrollment for him- or herself and/or his or her dependent;
- A court of competent jurisdiction orders coverage to be provided for a spouse or minor child under a covered employee's health benefits plan and the employee makes the request for enrollment within 30 days after issuance of that court order;
- The small employer offers multiple health benefits plans and an employee elects to change from one to another of the offered health benefits plans during an open enrollment period.
- The employee enrolls himself and his dependents during a special enrollment period.
Special enrollment periods arise due to individual employee life events: marriage of the employee, or birth or adoption of a child. When one of these events occur, if an employee seeks coverage for himself and/or his or her dependent(s) within 30 days following the marriage, birth or adoption, neither the employee nor any of the employee’s dependents are considered to be late enrollees.
What does all of this mean in practice? It depends on the size of the employer.
For small employers with 6 to 50 eligible employees, a preexisting condition limitation ONLY applies to someone who is a late enrollee. If a person can avoid being classified as a late enrollee for one of the reasons stated above, then s/he (and his or her dependents) will not be subject to the late enrollee preexisting condition limitation period. Of course, individuals under age 19 are not subject to a preexisting condition limitation period even if they are classified as late enrollees.
For small employers with 2 to 5 eligible employees, a preexisting condition limitation period applies whether or not a person age 19 or older is considered a late enrollee. So even if an employee enrolls during a special enrollment period, the enrolling employee (and his or her dependents other than a child) will be subject to a pre-existing condition limitation period anyway. Please note: “Child” includes newborns, adopted children, and children placed for adoption who are younger than 19 years old upon the date of enrollment.
If a covered person is subject to a pre-existing condition limitation, he or she is entitled to have the pre-existing condition limitation period reduced, or even eliminated, if he or she had prior creditable coverage. Credit for prior coverage enables both small employers and their employees to switch health benefits plans and carriers without worrying about facing new pre-existing condition limitations each time. This is what is referred to as portability.
Most, but not all, types of coverage that pays for medical and hospital costs is creditable. Creditable coverage includes individual health benefits plans, coverage through group health plans (whether insured or self-funded), and any federally funded health benefits program (e.g. Medicare, Medicaid). However, even if coverage is creditable, it may only be used to reduce or eliminate application of a pre-existing condition limitation clause so long as there is not more than a 90-day lapse between the termination date of the prior creditable coverage and the enrollment date under the new small employer group health plan. (Note: The permissible lapse period is 63 days when moving to large group coverage, and generally 31 days if moving to individual coverage.)
A carrier generally will reduce the amount of the pre-existing condition limitation period by the amount of time the individual in question had prior creditable coverage. So, if an employee was covered at least 6 months under prior creditable coverage, and there was no more than a 90-day lapse between the prior coverage and the enrollment date for current small group coverage, no pre-existing condition limitation period would apply.
An employee or dependent may be required to produce a certificate of creditable coverage to prove that he or she had such coverage. The carrier or other plan sponsor of the prior coverage has an obligation under federal law to provide the certificate to the employee or dependent upon termination of the prior coverage, and upon request. However, alternate documentation of prior coverage may be substituted, if necessary.
An employer may institute a waiting period for new employees, subject to some restrictions. Currently, a waiting period of up to 6 months is permissible, but beginning in 2014, the waiting period can be no longer than 90 days under federal law. Institution of a waiting period may be by class of employee, so long as the class is a bona fide condition of employment (for instance, based on hours of employment, salary versus hourly wage or union versus non-union). An employee will not be considered to have health coverage while in a waiting period for purposes of determining his or her total amount of creditable coverage. On the other hand, a waiting period does not count against an employee for purposes of determining a lapse between prior creditable coverage and the enrollment date under a current small group health benefits plan.
The SEH Program Act requires that premiums for small group health benefits plans be determined using a modified community rating basis. Carriers may consider only the age, gender, and rating tier of eligible employees (for example, “Employee Only,” “Employee & Child(ren)”), and the location of the employer in New Jersey in determining the premium for the group. The rules for the SEH Program set forth the permissible age and territorial rating classifications.
Carriers may not rate any small group, or member of the group, on any other factors. Accordingly, it is impermissible for a carrier to rate based on an individual’s health status, the claims experience of eligible employees or the group as a whole, the industry classification of the employer, or the employer’s type of business. Carriers must provide a reduced premium rate or rating factor for those situations in which an employee or spouse is covered by Medicare and Medicare is the primary coverage. (The carrier may apply the reduction directly to the Medicare-covered employee or may apply the reduction to the rate for the entire group, in which case, the reduction may not be readily apparent in the rate quote.)
So, a carrier’s rates will not consider whether a small business is a floral shop, an accounting service, or an automotive repair shop, but will consider whether the business is located in Bergen County or Atlantic County. A carrier’s rates will not consider whether the small business has employees with chronic health conditions, but will consider the number of men and women who work for the business and their ages.
Using the permissible rating factors, carriers are required to limit the range of premiums for a health benefits plan from the highest risk group to the lowest risk group so that premiums do not exceed a two-to-one ratio between the groups.
Although your premiums will vary based on the specifics of your group, you can make some comparisons among carriers before requesting a rate quote by reviewing the Premium Comparison Chart for sample small groups.
If a carrier discovers that it has undercharged a small employer, the carrier must provide the small employer with notice of the error at least 60 days prior to charging the small employer group the corrected premium amount. The carrier is not permitted to try to collect or offset for the undercharges.
If a carrier discovers that it has overcharged a small employer, the carrier must stop doing so immediately, provide notice to the small employer about the overcharges as soon as possible, and refund or credit the full amount of the overcharges to the small employer within no more than 30 days after discovering the error. (See N.J.A.C. 11:21-9.6)
Continuation of Coverage
Small employer health benefits plans must contain continuation of coverage provisions that may be exercised when certain covered persons lose eligibility. Some small employers will be subject to the continuation rights established by the federal law referred to as COBRA. Most small employers will be subject to the continuation rights established by New Jersey law, referred to as the New Jersey State Group Continuation (NJSGC) right. The laws are similar, but there are some differences. In addition, New Jersey law sets forth a special continuation right for certain employees that terminate employment due to total disability.
Brief Comparison of COBRA and NJSGC
Both COBRA and NJSGC:
- Establish continuation rights for most of the same groups of qualified beneficiaries – employees, spouses and child dependents – if covered under the health benefits plan immediately preceding the qualifying event.
- Establish continuation rights as the result of most of the same types of qualifying events.
- Establish continuation periods of the same duration.
- Permit the employer to require that the person who elects to continue the coverage pay 100 percent of the cost of the coverage, plus a 2 percent administrative fee (that is, 102 percent of the cost).
NJSGC differs from COBRA in that:
- Domestic partners and civil union partners have a right to make an NJSGC election upon the death of the employee or dissolution of the partnership if covered under the health benefits plan immediately before these qualifying events.
- COBRA entitles a former employee’s spouse to maintain the continued coverage for the duration of the continuation period even after the former employee enrolls in Medicare, but NJSGC does not.
- COBRA applies to employers with 20 or more employees, with some exceptions (such as church plans).
- NJSGC applies to employers with 2 to 50 employees, including employers to whom COBRA does not apply, if the employer purchases a small group health benefits plan.
Groups with 20 to 50 eligible employees must comply with both COBRA and NJSGC. So, groups of 20 to 50 eligible employees must provide for continuation for domestic partners and civil union partners although COBRA would not require it. Likewise, a group with 20 to 50 eligible employees must allow a former employee’s spouse to maintain continued coverage even after the former employee enrolls in Medicare because COBRA provides that protection to spouses, although NJSGC would not require it. In addition, church plans of employers with 2 to 50 employees must comply with NJSGC, even though they do not have to comply with COBRA at all. For more detail, refer to Advisory Bulletin 07-SEH-02 (PDF).
Employees, qualifying events and duration of continued coverage for NJSGC
The following information is specific to the NJSGC. For more about COBRA, see “An Employee’s Guide to Health Benefits Under COBRA” (PDF) published by the Employee Benefits Security Administration of the U.S. Department of Labor.
The NJSGC requirement specifies that an employee be given the option to continue coverage when:
- the employee is terminated for reasons other than cause;
- the employee’s hours are reduced, causing him or her to be ineligible for the small group coverage; or
- the employee ends employment.
An employee is entitled to continue the coverage he or she had immediately prior to his or her ineligibility, including covering dependents who were covered prior to the employee’s ineligibility. An employee is entitled to continue coverage for 18 months, unless he or she is disabled within 60 days after the qualifying event, in which case, he or she may continue coverage for 29 months. The determination of disability is made by the Social Security Administration.
Dependents, qualifying events and duration of continued coverage
The NJSGC specifies that a covered spouse, civil union partner or domestic partner be given the independent option to continue coverage when he or she would otherwise lose eligibility for coverage because of:
- Death of the covered employee; or
- Divorce or other legal action that results in termination of the marriage, or dissolution of the civil union or domestic partnership with the covered employee.
The NJSGC specifies that a covered child dependent be given the independent option to continue coverage because of:
- Death of the covered employee;
- Divorce or other legal action that results in termination of the marriage, or dissolution of the civil union or domestic partnership with the covered employee; or
- The child ceases to be an eligible dependent (for instance, because s/he marries or attains the policy’s limiting age for dependent children).
When a dependent makes a continuation election, he or she is entitled to continue coverage for up to 36 months.
Limits on the duration of coverage
Continued coverage pursuant to NJSGC may end earlier than the prescribed continuation period if:
- the employer ceases to offer any health benefits plan;
- the covered person fails to make appropriate payment (subject to a 31-day grace period);
- the covered person becomes covered under another health benefits plan that applies no pre-existing condition limitation to the covered person and anyone else under the continued health benefits plan; or
- the covered person becomes entitled to Medicare.
Employers have a legal obligation to notify their employees of the right to continue coverage at the time of termination or at the time the employee assumes part-time status. An employer has an obligation to remit the premium paid to the employer by the employee/former employee or dependent on continuation as part of the employer’s regular premium payment. In other words, the employer is obligated to serve as a conduit for the premium payment to the carrier. However, employers are not required to contribute to the premium or otherwise “front” the money for the employee.
Continuation in the event of total disability
New Jersey law (N.J.S.A. 17B:27-51.12 and N.J.S.A. 17:48E-32) requires that when a covered employee terminates employment due to total disability, the employee may continue coverage (including coverage for his or her dependents) under the group’s health benefits plan. The employee must have been covered under the health benefits plan at least three months prior to termination of employment. The employee may be required to pay the group rate for the continued coverage. An election must be made within 31 days after the date the coverage would otherwise terminate. An employee’s eligibility for Medicare does not limit the right to continue coverage under the group health benefits plan.
Under this election, continued coverage will end:
- for the employee and any covered dependents if the employee fails to pay the required premium
- for the employee and any covered dependents when the employee is again employed and eligible for another group health plan
- for a dependent when that dependent stops being an eligible dependent or becomes eligible for another group health plan
- for the employee and any covered dependents if the employer ceases to offer a group health benefits plan to all employees.
In the event the employer replaces the group health benefits plan with another such plan, the disabled employee has the right to become covered under the replacement group health benefits plan.
Please Note: All small employer health benefits plans have terms and conditions in compliance with this New Jersey continuation requirement, including those offered by HMOs. However, in the larger group market, New Jersey law does not require HMO’s to provide continuation coverage specifically for termination due to total disability.