Individuals Jumping Into Group Medical: The Challenges for Micro Groups

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​With costs rising and access to health insurance tightening, micro groups are looking to fall in with the big kids. But, not all will qualify.

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The proposed increase to 2018 individual medical rates, along with various plans pulling out of entire counties in Washington, is scaring the bejesus out of those with current individual plan coverage.  For those who own a business, they are looking seriously at moving to a group-based plan.  Unfortunately, not all businesses will qualify. 

If the business can enroll 5 or more employees on medical coverage, they won’t have to jump through “micro group” hoops.  But for a group that will have just 1 to 4 enrolled (the industry definition of a micro group) things get complicated. 

The Common-Law Conundrum
For micro groups, it all comes down to the definition of “common-law” employees; some owners and their spouses are not considered “common-law” under Federal guidelines.  First and foremost, they must be reported on 5208 A&B reports to be considered “common-law” (carriers will want to see a minimum of two quarterly reports and some may ask for more). 

Even then, owners and their spouses may not be considered “common-law” employees, depending on the structure and taxation of the company as well as the W-2 status of the owner and/or spouse.

Here’s a quick guide:

• Under a Sole Proprietor or Partnership, the owner and spouse are NOT considered “common-law” (even if paid as a W-2 employee)
• Under a Limited Liability, typically the owner and spouse are not considered “common-law”, however, if the company files their taxes as a C-Corp or an S-Corp AND the owner and/or spouse is a W-2 employee, they are considered “common-law”
• Under a C-Corp or an S-Corp, the owner and spouse are considered “common-law” if paid as a W-2 employee

This becomes very important when a company’s only W-2 employees are either owners or their spouses.  The way their company is set up will affect their eligibility for group-based medical coverage.  The solution may be to move from one company type (such as sole proprietor) to another (S-Corp for instance).  But that is easier said than done and can cost a pretty penny in legal and CPA fees, but more importantly future taxes.  Not a decision to be entered lightly.

What’s a Micro to Do?
Western Washington has six major carriers offering group medical coverage to micro groups. I wish I could tell you that they all have the same “entry” rules, but alas, they interpret the regulations differently.  One thing carriers DO have in common – their minimum W-2 employee requirements (below) must be met under three different circumstances:  1) the prior calendar year, 2) the first day of the plan, and 3) the actual enrollment on the plan.

The carriers fall into three different requirement categories (and remember, some owners and their spouses won’t be included in these numbers!):

• At least two W-2 employees: HealthNet
• At least one W-2 employee:  Premera and Regence
• At least one W-2 employee who is NOT an owner or an owner’s spouse: Aetna, Kaiser, United

Let’s look at how these rules could affect actual companies.  

Example Company	Available Carriers
​An S-Corporation with one W-2 employee who is also the owner of the company	Premera and Regence
​A C-Corporation with two W-2 employees – one is the owner and the other is the owner’s spouse	HealthNet, Premera and Regence
A partnership with 4 W-2 employees (none being the partners or the partner’s spouses), where all four would be eligible for the medical plan	​All carriers
A partnership with 4 W-2 employees (none being the partners or the partner’s spouses), where only one would be eligible for the medical plan	​All except HealthNet

And Then There’s Tax Documentation
For micro groups, most of the carriers are going to want the business’ most recent tax documents.  For those employers who don’t want to provide their tax info, Premera will be their only option.  Carriers may also want a sole proprietor or partners in a partnership to receive more than a certain percent of their income from the business (cannot be passive income, such as rental income).  Be sure to ask micro group business owners about their willingness to provide tax information before you start searching the market for options. Your sanity may depend on it!

Employer Contribution Requirements
For an owner of a micro company to qualify to enroll on a group-based medical plan, sometimes she will also need to cover some W-2 employees in order to meet the “group plan” requirements.  Therefore, the minimum employer contribution requirements will play a major role in the final carrier decision. 
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The lowest required contributions are through Kaiser, HealthNet, Regence and United at 50% of the employee’s premium.  Aetna’s requirement bumps this up to 75% of the employee premium or 50% of the employee and dependent premiums.  Premera is the most stringent, requiring both 100% of the employee premium and 50% of dependent premiums. 
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The Bottom Line
For some business owners, group coverage may be a viable alternative to continuing individual medical coverage.  It’s just better to know the rules going in so you are able to make the best use of your clients’ time, as well as your own.  We are predicting another lively busy season ahead!   

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