Coverage for Current Employees | Health Insurance

No law mandates insurance coverage in every workplace. But employees can take some insurance aid and comfort from a number of state laws—and from a federal law imposing some fundamental fairness in coverage.

Caution Independent contractors need not apply. If you work as an independent contractor—a term used to describe people who are in business for themselves, such as consultants, freelancers, the self-employed, entrepreneurs, and business owners—you are covered by neither federal nor state laws that require health insurance coverage or continuation. To become insured, you must proceed on your own through the often mind-numbing process of procuring insurance—and the often bank account-draining process of paying for it. If you have questions about your work status as an independent contractor or employee, consult your local department of labor.

1. State Laws

A few states, counties, and cities now require some employers to provide health insurance coverage for some employees who work there. For example, Hawaii requires employers to provide coverage to employees earning a set amount or more per month. (Haw. Rev. Stat. § 393-11.)

In addition, some state laws require that employers who offer insurance to employees must provide certain minimum coverage. The state requirements vary considerably, but typical minimums include coverage for medical and surgical benefits, treatment of mental illness, alcoholism, and drug abuse and preventative testing such as mammograms and PAP smears. Check with your state’s health commissioner to find out whether there is any minimum mandated coverage in your area.

Some states impose additional restrictions on workplace health insurance. For example, a growing number of them make it illegal for employers to fire employees because they file a legitimate claim against their company’s health insurance.

2. The Health Insurance Portability Act

The Health Insurance Portability and Accountability Act, or HIPAA (Pub. Law 104-191), a federal law that took effect in July of 1997, makes it easier for employees to change jobs without losing insurance coverage—and to get coverage in the first place.

The law’s biggest promise is to improve the portability of health insurance coverage. But in addition, it purports to:

take aim against health care discrimination, fraud, and abuse, and

promote the use of tax-favored insurance plans.

a. Increased Portability
Group insurers now face limits when attempting to restrict enrollment because of preexisting medical conditions.

Under HIPAA, for example, pregnancy is not considered a preexisting condition—and newborns or newly adopted children cannot be excluded if they are enrolled within 30 days of birth or adoption.

The maximum amount of time a group health insurance plan, HMO, or self-insured plan may exclude someone on the basis of a preexisting condition is 12 months. This exclusion period is reduced by the amount of time an employee previously had continuous coverage through other private insurance or public insurance programs.

Insurers must offer individual coverage to a person who loses group coverage if the individual:

was continuously covered for 18 months under a group health plan

has exhausted COBRA coverage (see Section C, below), or

is ineligible for coverage through government programs such as Medicare or Medicaid.

b. Discrimination Protection
Group health plans and employers cannot deny coverage for an individual and his or her dependents based on health status, physical or mental medical condition, claims experience, genetic information, disability, or domestic violence.

The Inspector General and U.S. Attorney General are charged with establishing a program to coordinate federal, state, and local programs to control health plan fraud and abuse—and criminal penalties can now be imposed for defrauding any health benefits program.

c. Tax-favored Insurance Plans
Beefed up by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which became effective January 1, 2004, there are now a number of programs available with the aim of giving employees tax advantages to offset health care costs.

Health Savings Accounts. A Health Savings Account permits some workers to save for, and pay, health care expenses for themselves, a spouse, and dependents, free of taxes.

HSAs may be established by any individual who is covered by a qualified high-deductible health plan—those with an annual deductible of at least $1,000 for individuals or $2,000 for families. Contributions can be made into these accounts—by either individual employees or their employers—for the full amount of the annual deductible each year, to a maximum of $2,600 for individuals and $5,150 for families. They operate much the same way as the now-familiar Individal Retirements Accounts (IRAs) do for saving retirement money.

Medical Savings Accounts (MSAs) were the precursor to HSAs—and money put in them can be rolled over into an HSA.

Possible benefits of HSAs include:

You can claim a tax deduction for contributions you make, even if you do not itemize your deductions on Form 1040.

Interest or other earnings on the assets are tax-free.

Distributions may be tax-free if you pay qualified medical expenses.

Contributions remain in from year to year until you use them.

They are portable; they stay with you if you change employers or leave the work force.

Flexible Spending Arrangements. A Flexible Spending Arrangement (FSA), offered at an employer’s discretion, allows employees to be reimbursed for medical expenses. FSAs are usually funded through voluntary salary reduction agreements with your employer. No employment or federal income taxes are deducted from your contribution—and you are also free to contribute.

Possible benefits of an FSA include:

Your employer’s contributions can be excluded from your gross income.

No employment or federal income taxes are deducted from the contributions.

Withdrawals may be tax-free if you pay qualified medical expenses.

You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.

Health Reimbursement Arrangements. A Health Reimbursement Arrangement (HRA) must be funded solely by an employer. The contribution cannot be paid through your own voluntary salary reduction agreement. Employees are reimbursed tax-free for qualified medical expenses up to a maximum dollar amount for a coverage period. An HRA may be offered with other health plans.

Possible benefits of an HRA:

You can exclude your employer’s contributions from your gross income.

Reimbursements may be tax-free if you pay qualified medical expenses.

Any unused amounts in the HRA can be carried forward for reimbursements in later years.

Note For more information on all of these tax-deferred accounts, see IRS Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans, at www.irs.gov. Or order it from the IRS by calling 800-829-3676.