What is a Small Employer?
The SEH Program Act provides the definition of a small employer.  There are three tests that a company must meet in order to be considered a small employer for purposes of the SEH Program.  Your company must:

• Employ an average of at least two but no more than 50 eligible employees on business days during the preceding calendar year;
• Employ at least two eligible employees on the first day of the plan year; and
• Have a majority of the eligible employees working at a location in New Jersey.

Eligible Employees
For purposes of the SEH Program, an eligible employee is a bona fide employee who works for an employer 25 or more hours per week every week.  Eligible employees may include the owner(s) (partners and proprietors) of a business if the owner is a bona fide employee of the business.

Eligible employees do not include employees who are covered as members under a union’s collectively bargained welfare arrangement.  But if the employee’s union has not collectively-bargained for health coverage, or the employee has decided not to participate in the collectively-bargained health coverage even though eligible, and he or she also works 25 or more hours per week on a regular basis, then you must include the union employee in the count of eligible employees.

Eligible employees do not include independent contractors, employees hired on a temporary or substitute basis, or seasonal employees, regardless of the number of hours worked.  Carriers have underwriting guidelines that define whether employees are temporary, seasonal or otherwise bona fide employees.

Affiliated Companies
Whether companies are affiliated for purposes of the SEH Program depends upon whether the companies are considered a single employer pursuant to paragraphs (b), (c), (m) or (o) of section 414 of the Internal Revenue Code of 1986 (26 U.S.C. § 414(b), (c), (m) or (o)).  An employer will need to obtain a statement from a tax accountant or tax attorney as to whether multiple companies are considered affiliated for federal tax purposes.

Newly-formed Businesses
In general, the determination of a company’s average number of eligible employees is based on the company’s activity in the calendar year prior to the year in which the company is seeking to begin or renew a small group health benefits plan.  However, when a company is in its first year of operation, the determination of how many eligible employees the company has will be based on the average number of eligible employees that it is reasonably expected the employer will employ on business days in the current calendar year.  A company does not have to wait a calendar year in order to apply for and obtain health coverage, but the employer must employ at least two eligible employees on the effective date of coverage.

Plan Year
“Plan year” refers to the duration of the contract for the health benefits plan(s).  In general, a health benefits plan contract runs for 12 months.  In the group market the plan year can start at any time, but carriers may limit the beginning of a plan year to the 1st or 15th of a month.  Regardless of when a plan year starts, in order to be considered a small employer, the employer must have two eligible employees at the start of the plan year.

What is an Employee Participation Requirement?
At least 75 percent of a small employer’s eligible employees must participate in coverage as a condition of obtaining a small group health benefits plan.  However, no carrier may require that 75 percent of the eligible employees participate in any one carrier’s health benefits policy.  Instead, an eligible employee is considered to be participating in a health benefits plan – and counts towards the group’s total 75 percent participation goal – if the employee:

• Is covered as a dependent under any group health plan, including any of the policies offered by the employer's group health plan;
• Is covered through a group health plan offered by another employer, whether as an employee, former employee continuing coverage (for instance, through COBRA), or as an eligible dependent;
• Is covered through Medicare;
• Is covered through Medicaid; or
• Is covered through NJFamilyCare.

Example 1 (Employer offers one coverage option):
Mike’s Bike Shop wants to offer coverage to its 12 eligible employees under one carrier’s health policy.  To do so, at least 75% of the eligible employees must elect coverage under the policy offered, or submit a valid waiver showing the employees have coverage as indicated above.  That is, at least 9 employees must either enroll or waive enrollment for valid reasons that count toward participation.  So, if

then Mike’s Bike Shop meets the 75% participation requirement, because 3 enrollments PLUS 3 waivers due to Medicare PLUS 4 waivers due to spousal group coverage equals 10 eligible employees.

Example 2 (Employer offers multiple coverage options):

Mike’s Bike Shop wants to offer policies from multiple carriers to its 12 eligible employees.  Each carrier requires Mike’s Bike Shop to meet the 75% participation requirement.  So, if

then Mike’s Bike Shop meets the 75% participation requirement for both carriers.  Carrier A counts its 3 enrollees PLUS the 3 waivers due to Medicare PLUS the 4 waivers due to spousal group coverage for a total of 10 eligible employees.  Carrier B counts its 2 enrollees PLUS the 3 waivers due to Medicare PLUS the 4 waivers due to spousal group coverage for a total of 9 employees.

A carrier is not required to count eligible employees covered under another carrier’s contract issued to the same employer. 

A carrier must offer at least one policy to a small employer’s group if the employer meets the participation requirements.  A carrier may permit a small employer to offer more than one of the carrier’s small group health benefits policies to employees; however, the carrier may limit the number of additional policies it will issue, based on the carrier’s “underwriting guidelines” available on the SEH Board’s website.  If a carrier does not provide underwriting guidelines for the SEH Board for posting, then the carrier does not limit the number of contracts it will issue to a small employer’s group.

Group Health Plan
A “group health plan” means an employee welfare benefit plan, as defined in Title I of section 3 of Pub.L.93-406, the “Employee Retirement Income Security Act of 1974” (29 U.S.C.s.1002(1)), to the extent that the plan provides medical care, including items and services paid for as medical care to employees or their dependents directly or through insurance, reimbursement or otherwise.  Most plans offered by employers are considered group health plans, including small employer health benefits plans.  However, for purposes of calculating participation, the term group health plan does not include the self-funded plans offered by the same employer. In addition, a carrier is not required to include employees covered under policies issued by another carrier to the same employer (see the carrier’s underwriting guidelines, if any).

Classes of Employees and Participation
An employer is permitted to limit the offer of coverage to employees by class, subject to some limitations. Classes must be based on bona fide conditions of employment – for instance, hours worked per week, salary versus hourly wage, or union versus non-union.*  But for purposes of meeting the participation requirement, all eligible employees are considered in the count.  For example, if an employer with 30 eligible employees – 15 of whom work 35 hours per week and 15 of whom work 30 hours per week – wants to offer coverage only to employees working 35 hours per week, he may do so, but the group must meet the participation requirement based on 30 eligible employees.  So, at least 23 employees must be covered under the employer’s group health plans(s) or another group health plan, Medicare, Medicaid or NJFamilyCare for the employer to meet the participation requirement.

Changes in a Carrier's Underwriting Guidelines
Occasionally, a carrier may change its underwriting guidelines.  Any revisions will be posted on the SEH Board’s web site, and will apply only to new business or renewals with plan changes occurring on or after the date the revisions to the guidelines are effective.

What is an Employer Contribution Requirement?
A small employer is required to pay 10 percent of the total cost of a health benefits plan issued to the employer’s group. A small employer may, of course, elect to pay a greater percentage – up to 100 percent – but a carrier may not require the employer to pay more than 10 percent as a condition of issuing the small employer a small group health benefits plan.

Note that the employer’s contribution obligation is based on the total cost of the health benefits plan, not just the cost related to employees or a class of employees.  For example, if the total cost of a plan for all employees and dependents is $10,000 per year, the minimum employer contribution would be $1,000 per year.

For purposes of insurance law, it is possible for an employer to limit its contributions to the group premium by class of employee or by employee coverage only (thus, requiring some classes of employees to pay more of the premium than other classes, or requiring employees to pay the full cost of dependent coverage, if offered).  However, the employer’s contribution obligation remains at least 10 percent of the total cost for the health benefits plan. 

*Please note: Beginning in 2011, federal law makes most group health plans that unfairly discriminate in favor of highly compensated employees subject to tax and other potential penalties.  However, the Internal Revenue Service has stated in Notice 2011-1 that it will not require employers to comply with the requirement until the agency has adopted regulations further explaining the law.