Qualifying for California group health insurance for new companies can be more difficult than established companies.  Usually, when we first start a discussion with a prospective company, pretty soon into the conversation the topic of when the company was formed comes up.  It is important to tackle this first before going into all the plan detail and and other qualifications.  Most of the issue comes down to the AB 1672 and company requirements needed to qualify for Guaranteed Issue in California.  Let's first take a look at AB 1672 in terms of how it affects new companies. 

AB 1672 and new California companies

The main requirements that typically delays effective dates for new companies is that at least two people must be formally tied to the company for "1/2 of the prior calendar quarter".  That's the synopsis of the rule but the key part for a new company is the 1/2 of the prior calendar quarter.  For example, if we want a Jan 1st or later effective date, we need to the two people tied to the company before 11/15 of the prior year (45 days essentially).  If the start for eligibility is 11/25, then it actually pushes you out to 4/1 of the next year.  The first thing is to establish how a person can be formally tied to the company and the second part is to establish from when the formal relationship begins.

How a person can be formally tied to the company and eligible for group health benefits

There are two main ways to be eligible for Group health benefits.  First, they can be on payroll.  In this case, they would show on the DE6 or California payroll report to the State.  This is an official document that is submitted to the State.  The carriers look at the DE6 as a trustworthy document to establish a person's legitimate employer-employee relationship with the company.  As a side note, they also can infer part-time or full-time status from the amounts paid.  The DE6 shows the number of employees in each of the three months that make up the prior quarter.  The underwriter can look at this to establish how many employees showed under each month. 

The other way a person can be eligible is through ownership.  The documentation requirements differ depending on the structure of the business if a person is not showing on payroll.  Following are some general guidelines according to company structure:

Sole Proprietorship.  A Sole Proprietor is essentially a person that owns the company in his/her own name.  The person and the company are the same in eyes of the IRS and the State for insurance eligibility.  The carriers typically require a current Schedule C which is the tax document submitted for Sole Proprietors.  Usually, a California business license or Fictitious Business Name filling can be substituted if you are in your first year of business and have not submitted a Schedule C yet.  The underwriter will look at the stamped date of processing from the State to establish eligibility for the 1/2 of the calendar quarter requirement.

LLC Members/Managers.  A LLC is a more formalized partnership.  The underwriter will require a K1.  If a K1 is not available for a new company, the carrier will typically accept a Statement of Information or Articles of Organization with Operating Agreement.  These documents needs to be stamped by the State with a date prior to the 1/2 of the prior calendar quarter.  They also need to list the officer in question. 

Corporate Officers.  The carrier will require a Statement of Information and/or Statement by Domestic Stock Corporation or Articles of Incorporation (filed and stamped listing Officers).  Again, the underwriting will go based on the stamped date of the document that lists the Officers (usually the Statement of Information). 

Partner.  The carrier will typically require the K1 (similar to LLC).  If the K1 is not available due to length in business, the carrier will require a partnership agreement and Federal Tax ID appointment Letter.  Limited partners in a partnership are usually required to be on the DE6 or payroll.

This is a lot of information and typically very confusing for new companies that are investigating Group health insurance in California.  Due to the complexity, it's probably best to go over your company's situation with your California health insurance agent first.  This can save you a lot of frustration and potentially wasted time. 

Aside from the prior calendar rule, the other issue that we typically see is getting the require number of eligible employees to go with the plan.

We need at least 75% of the eligible employees to go with the plan.   This comes up with small to mid-size groups where employees are declining coverage.  Some quick notes on the definition of "eligible".

1099's  1099 or contract employees are not considered eligible for California group health insurance

Part Time  Employees working under 30 hours weekly can be included or not depending on what the group chooses.  If the company chooses to cover part time, they then figure into the 75% calculation

On other Group Plan.  Employees on another qualified Group health plan are not part of the eligible pool. 

Where we see an issue on this requirement is when we have 3 employees who want to enroll and 2 who do not (and they do not fall under the above waivers).  Newer companies usually have fewer employees as they are just starting and that can be an issue.

A side rule to this is the majority rule in California for companies with employees in other states.  At least 51% of total (not just eligible) employees need to be California. 

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