Is 'Selective' Health Coverage Permissible?
Group health insurance can be expensive for employers, which is why cost savings is often the primary reason employers seek to offer coverage only to particular employees. Generally speaking, this is permissible. But, there are several legalities to consider, including the Affordable Care Act, employment-based classification and discrimination laws.
The Affordable Care Act
You are not required by law to provide health insurance. But, per the ACA, if you have 50 or more full-time equivalent employees, you must offer affordable health coverage or suffer a penalty. If you choose to provide health insurance, thereby avoiding the penalty, you must extend coverage to at least 95 percent of your full-time employees. In this case, you do not have to provide coverage to employees who are not full time.
The ACA aside, you can offer health insurance based on certain groups/categories of employment. Specifically, the Health Insurance Portability and Accountability Act lets you provide health insurance to employees in different groups, so long as the groups are "based on a bona fide employment classification."
For instance, you can restrict eligibility based on the following:
- Full-time status.
- Part-time status.
- Geographic location.
- Hire date.
- Current versus terminated employment.
- Length of service.
- Collective bargaining membership.
You may, for example, offer coverage only to full-time employees, salaried workers, employees with higher seniority, employees in specific jobs or employees who work within your state. However, all employees within the group must be treated the same way.
Although you can offer health insurance to certain groups of employees, you cannot discriminate when making related decisions.
According to the Equal Employment Opportunity Commission's Compliance Manual (for employee benefits), " … if an employer provides a lower level of benefits to an individual based on a prohibited factor, it must make out a defense. If it cannot do so, its conduct will be unlawful, and cause should be found."
Prohibited factors are individual characteristics protected by federal law, including race, color, national origin, sex, religion, disability, age and genetic information. It would, for example, be discriminatory to give health insurance to men but not to women, or to non-disabled employees but not to those who are disabled.
Additionally, Section 125 of the Internal Revenue Code forbids benefit plans from discriminating in favor of highly compensated or key employees. Further, under HIPAA, employers cannot deny an employee coverage or charge him or her more for health insurance because of a health factor such as medical condition, medical history, claims experience, genetic information or disability.
Some states have discrimination laws that are more stringent than federal laws. For instance, the state might also ban discrimination based on marital status, weight or sexual orientation. To reduce the potential for discrimination claims, make sure that all employees within each employment-based group receive equal treatment.