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Are group health insurance, minimum participation requirements legal?


I have a client with a very interesting scenario in regards to Affordable Care Act (ACA) compliance and their desire to abide by the law. This client is defined as an Applicable Large Employer (ALE) by having greater than 50 Full-time Equivalent employees, therefore is bound by the Employer Shared Responsibility provisions under 4980H of the Internal Revenue Code. If they do not offer affordable health coverage to their full-time employees, they may be subject to a penalty of $2,000 per employee.
In this case, the company, not wanting to be penalized, sought a health insurance agent to obtain a group policy to offer coverage. They found a plan that was reasonably priced, with an employee cost of only about .93 cents per hour ($75 biweekly), and presented the plan to their employees. The employees earned over $10 per hour, so it did meet affordability too. So far, so good.

The problem came about in that a majority of their employees, for whatever reasons, declined coverage, with only about 15 of the 70 full-time employees electing coverage. They did not have coverage elsewhere, and honestly, I would say that they may not have wanted to even pay $1 as they do not believe in insurance. For that matter, they could even claim religious reasons, as conventional insurance is forbidden under Islam, for example. Not that they are Muslims, but you get the idea.
The quandary is that the company is now faced with an IRS penalty of upwards of $80,000 if they do not offer coverage, and the carriers are not making coverage available, as they are demanding 75% participation by their employees.

As I read through the PPACA code again, I find Section 2702 [42 U.S.C 300gg-1] titled Guaranteed Availability of Coverage, and it states;

(a) GUARANTEED ISSUANCE OF COVERAGE IN THE INDIVIDUAL AND GROUP MARKET.—Subject to subsections (b) through (e), each health insurance issuer that offers health insurance coverage in the individual or group market in a State must accept every employer and individual in the State that applies for such coverage.
(1) RESTRICTION.—A health insurance issuer described in subsection (a) may restrict enrollment in coverage described in such subsection to open or special enrollment periods.
(2) ESTABLISHMENT.—A health insurance issuer described in subsection (a) shall, in accordance with the regulations promulgated under paragraph (3), establish special enrollment periods for qualifying events (under section 603 of the Employee Retirement Income Security Act of 1974).
(3) REGULATIONS.—The Secretary shall promulgate regulations with respect to enrollment periods under paragraphs (1) and (2).

Note that the first sentence does state “Subject to subsections (b) through (e)”, there are no subsections (c), (d), and (e) in this Section.

According to the sentence in bold, this carrier practice of participation rates would be illegal under the act, and a company would be able to comply with the Employer Shared Responsibility provision of the ACA no matter what their participation, period.

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