Management or Employee carve-outs in a employer group health plan, are when some employees are covered and others are not, based on:
Job Classification
-
Management only,
Union vs. non-union,
Salary vs. non-salary
These classifications require Insurance Company underwriting approval based on their rules.
Carve Out's based on Ownership in the company, nepotism (family ties) are not permitted as Similarly situated employees, must be treated equally.
Salary
Management Carve Outs are are NOT Guaranteed Issue since they do NOT comply with the participation requirements of AB 1672 Small Group Guaranteed Health Insurance
Health Care Reform's Effect
PROHIBITION OF DISCRIMINATION BASED ON SALARY.
(a) IN GENERAL. The plan sponsor of a group health plan (other than a self-insured plan) may not establish rules relating to the health insurance coverage eligibility (including continued eligibility) of any full-time employee under the terms of the plan that are based on the total hourly or annual salary of the employee or otherwise establish eligibility rules that have the effect of discriminating in favor of higher wage employees.
(b) LIMITATION. Subsection (a) shall not be construed to prohibit a plan sponsor from establishing contribution requirements for enrollment in the plan or coverage that provide for the payment by employees with lower hourly or annual compensation of a lower dollar or percentage contribution than the payment required of similarly situated employees with a higher hourly or annual compensation.
(Patient Protection & Affordable Care Act
SEC. 2716.
Section 2716 HR 3590 Page 17)
No enforcement of Section 2716 until final regulations are issued per Notice 2011-1
Latest Attorney Interpretations of pending final regulations & Guidance
FAQ's
What is and how do I know if my plan is Grand Fathered?
Health Net Notice
Carve outs are acceptable as long as it's a true classification, like Management or Salaried Workers only. Carve outs are non-guarantee issue which means health statements are always required.
However, you can do a Guaranteed Issue carve out if the group meets all 3 criteria:
Total group size is under 50 eligible
At least 51% of eligible employees reside in California
Non-carve out population is offered coverage through another carrier
Email dated 8/10/2011
Health Net Explanation in their renewal guide.
FAQ's BC/BS 9/23/2010
Blue Shield FAQ's
Analysis
landry harris.com
What about some employees/owners? on Individual Plans and others on the group plan?
      
Consumer Links
Making health care reform work.com
Grandfathering
Discrimination Testing IRC Section § 105 (h)
IRC Section § 105
§106
Business Expenses Publication 535
Employer's Tax Guide to Fringe Benefits Publication 15-B pdf html
Please email us with your specific question, if you are in California.
More on Insurance Company Rules
Some Insurance companies might consider the non union employees as guaranteed issue, if the employer is mandated under a collective bargaining agreement to contribute to Union Labor Fund. Blue Shield Quick Underwriting Guidelins
Blue Cross & Blue Shield require a minimum eight enrolling employees. Kaiser is much more liberal on this.
Email us for the details, as different companies have carve out & participation rules
When you contact us please have the following information ready:
Distinctions among groups of similarly situated participants in a health plan must be based on bona-fide employment-based classifications consistent with the employer’s usual business practice. Distinctions cannot be based on any of the health factors (1182) noted earlier.
For example, part-time and full-time employees, employees working in different geographic locations, and employees with different dates of hire or lengths of service can be treated as distinct groups of similarly situated individuals, with different eligibility provisions, different benefit restrictions, or different costs, provided the distinction is consistent with the employer’s usual business practice.
In addition, a plan generally may treat participants and beneficiaries as two separate groups of similarly situated participants. The plan also may distinguish between beneficiaries based on, for example, their relationship to the plan participant (such as spouse or dependent child) or based on the age or student status of dependent children.
In any case, a plan cannot create or modify a classification directed at individual participants or beneficiaries based on one or more of the health factors.
(dol.gov)
similarly situated adj. with the same problems and circumstances, referring to the people represented by a plaintiff in a "class action," brought for the benefit of the party filing the suit as well as all those "similarly situated." To be similarly situated, the defendants, basic facts, and legal issues must be the same, and separate lawsuits would be impractical or burdensome. legal-dictionary
Our Taxation Page
Technical Links
AB 1672 has the same protections for similarly situated individuals
To qualify as an accident and health plan, payments under which are excludable from gross income in computing federal income tax liability, a "plan" must benefit all employees or some identifiable class of employees; a plan can be for as few as one employee but there must be some rational basis other than ownership of the corporation to discriminate among employees. American Foundry v. C. I. R., C.A.9 1976, 536 F.2d 289. Internal Revenue 3161
Tax Facts on Life & Health Insurance --- Rules on Corp. Officer and Highly Compensated Employees Discrimination, etc.
Patient Protection and Affordable Care Act (the Affordable Care Act), Pub. L. 111-148
Health Care and Education Reconciliation Act, Pub. L. 111-152,
Internal Revenue Code §105 Taxation of Benefits on Medical Insurance Plans
Employer Companies that are affiliated companies (common ownership) and that are eligible to file a combined income tax return for purposes of state taxation shall be considered one employer. CA Insurance Code §10700 w 1
Thanks to a visitor of our website - we've learned that you Cannot write a carve-out class of a Small Employer Group in the states of Indiana, North Carolina, Ohio, South Carolina, Texas Virginia, Wisconsin or Wyoming (expressly prohibited by their state law).
Similarly Situated Non-COBRA Beneficiaries
The group of covered employees, their spouses or dependent children who are covered under a group health plan maintained by the employer or employee organization. This group is receiving their benefits under the group plan and not through COBRA continuation coverage. They are most similarly situated to the circumstances of the qualified beneficiary immediately before the qualifying event. (www.dol.gov/)
Codes
Participation
Broker Links
Summary of Underwriting Requirements
(Warner Pacific)
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