Buyer Beware: Federal and State Law Issues with the FF-SHOP
By Carol Taylor
A little over a month ago, the Department of Health and Human Services (HHS) released several Q&As regarding the Federally Facilitated Small Business Health Options Program (FF-SHOP). At the time, they stated the FF-SHOP would not support COBRA transactions (see blog and Q&A here).
Several more Q&As were issued recently, and while they now state that COBRA participants should be listed as an employee (see Q&As 2851, 2874 and 2883), there are still issues that employers should be aware of before rushing to enroll in the FF-SHOP. Some of these issues could result in fines or lawsuits, depending on the situation.
One major federal COBRA issue that still exists is child-only policies will not be allowed (see Q&As 2873 and 2887). Non-compliance with this portion of COBRA could result in fines of $100 per day. While child-only elections for COBRA do not occur frequently, they are a necessity, especially if the child is disabled, has a major illness, or was involved in an accident and the deductible or out of pocket maximum has been, or is close to being, met. This also affects most states, where mini-COBRA or state continuation laws have been passed.
While in some states adults will not be an issue for continuation, in others it will be. Florida, for example, requires the insurance carrier to bill the continuant directly. Non-compliance in this area could cause someone wanting to continue coverage to sue their former employer, since it breaks Florida statutes.
At least eight states allow dependents over the age of 26 to remain covered under their parent’s policies, provided that certain restrictions are met. Most of these require the over-age dependent to be a citizen of that state and to not be married; however, several other factors may also be required. A listing of these states is provided here. In the FF-SHOP, over-age dependents will be terminated off the coverage automatically as listed in Q&As 2890 and 2856.
The over-age dependent automatic termination becomes an even larger issue in states where disabled over-age dependents are allowed to stay on their parent’s policies. This affects employers in at least 10 states. While many believe that it should not be an issue for the parents to just obtain an individual policy for those affected, there could be potentially devastating effects to families being forced off the group coverage. Many individual policies have higher deductibles and out of pocket maximums, narrow provider networks, limitation of carrier or plan choices, different prescription formularies and other items that must be expertly evaluated before switching coverage.
Another issue employers should be mindful is if their state requires no premium for the first month for newborns. The FF-SHOP will charge a pro-rated premium for all newborns. In their Q&As on this topic, they even acknowledge that they are violating state laws. The Q&As can be found at 2866 and 2880.
Although there are certainly other issues, one remaining concern in the latest round of Q&As is the pro-rate of premiums, found in Q&A 2894. This again becomes an issue for many states that do not allow any premium billing for other than a full month of coverage. It could be a major concern for employers to administer, since calculating the pro-rated amount can be a daunting task for many. If they calculate the amount incorrectly, they will need to correct payroll deduction amounts, leading to unhappy employees, if the amount was underestimated.
While states may levy fines for non-compliance, the employer should be aware that the most immediate risk is a lawsuit from the employee or former employee. They could even be filed under federal purview, such as the ADA and others. Before rushing into the FF-SHOP policies, an employer should weigh all these factors. They likely are not worth the minimal and limited small business tax credit for the apparent risks associated with breaking federal or state laws.
In the world of ever-changing rules, it is always best to seek the counsel of a seasoned insurance agent or broker.
Carol Taylor is a Employee Benefit Advisor with D&S Agency, a UBA Partner Firm.
For further information about the health care reform requirements for your business, download UBA's complimentary guide, "PPACA Compliance and Decision Guide for Small and Large Employers" from the PPACA Resource Center at http://bit.ly/1nHbaWv.