Qualifying for California group health insurance for new companies can be more difficult than for 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 other qualifications. Most of the issue comes down to the AB 1672 law 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.
The main requirement that typically delays effective dates for new companies is that minimum number of 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 have 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 is how a person can be formally tied to the company and the second part is to establish when the formal relationship begins.
There are two main ways to be eligible for Group health benefits.
First, the person 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 show 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
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 us as your California health insurance agent first.
This can save you a lot of frustration and potentially wasted time. You can start the process by running your California group health insurance quote or by contacting us with your situation.
With the passage of the ACA law, there are some changes to consider.
Open Enrollment for Small Group
There is now a group open enrollment at the end of each year during which a company may be able to enroll without meeting the requirements above. This can definitely affect a new company enrolling in benefits. Check with us at 866-486-6551 to see if you can take advantage of this window.
Aside from the prior calendar rule, the other
issue that we typically see is getting the
require number of eligible employees to go with
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
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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