Federal Laws Affecting Health Insurance
COBRA is the federal law that requires employers to continue to provide their health insurance coverage to employees who have been laid off or terminated. The coverage may extend from 18 to 36 months. To obtain coverage under COBRA, the employee or their dependent must apply to the employer within 60 days of termination of their employment. The U.S. Department of Labor handles all inquiries regarding COBRA coverage. Inquiries should be sent to:
Office of Program Services
Pension and Welfare
U.S. Department of Labor
200 Constitution Avenue, NW
Washington, DC 20210
ERISA (Employee Retirement Income Security Act)
Many people who believe that they have a health insurance policy through their employer are actually covered under what is called a self-insured health plan. A self-insured health plan exists when an employer chooses to pay for medical bills directly, instead of purchasing insurance for that purpose. Most self-insured plans are regulated by the federal government through the Department of Labor under the authority of ERISA and are exempt from state regulation. Most large employers have self-insured health plans.
Many employers use insurance companies to administer their self-insured health plan, including paying claims and, therefore, it may not be apparent that a plan is self-insured. An employer’s employee benefits administer should have this information.
Employers choosing to self-insure their health plans are not subject to state insurance laws such as benefit mandates, state premium taxes, capital and surplus requirements, and reserve requirements. They are also able to gain more control over their cash flow and have more freedom in determining benefits to be provided to their employees. Most employers with self-insured health plans purchase stop-loss insurance from insurance companies to protect themselves against large losses.
Employees who receive health coverage under a self-insured plan are not afforded the protections of state insurance laws and regulations. These protections include financial solvency requirements as well as requirements applying to the payment of claims. If a self-insured plan fails, Alaska benefits and managed care protections, such as standards for grievance procedures, fair disclosure of plan provisions, fair claims settlement practices and consumer services, are not available to employees. The federal laws governing these self-insured plans limit damages to actual costs and may not even cover attorney fees. Individuals covered under a self-insured plan must assume responsibility for all claims if the plan fails. Also, individual employees are required to obtain their own legal counsel to settle disputes, since the U.S. Department of Labor will not become involved in individual disputes over coverage. One other important consideration is that a self-insured employer may make material changes to the health plan (such as reducing or eliminating benefits) without providing advance notice.
HIPAA (Health Insurance Portability and Accountability Act of 1996)
This Act establishes federal standards for group and individual health insurance plans. The Act sets minimum standards for guaranteed renewability, preexisting condition waiting periods, and crediting for prior health insurance coverage. Alaska has enacted into law these federal standards which are discussed in the health insurance sections of this guide.
Health Savings Account
Under federal law, a bank, insurance company, or other federally approved entity may set up a Health Savings Account (HSA) in which money is set aside and used to pay for qualified medical expenses. Qualified medical expenses are those expenses paid for medical care, including any deductible and coinsurance payments. Qualified medical expenses paid out of the account are not included in gross income for federal income tax purposes, contributions are deductible and the HSA earnings are tax-exempt. Unused balances in the HSA may accumulate without limit. Health Savings Accounts are regulated by the federal government, not the Alaska Division of Insurance.
In order for a savings account to qualify as an HSA, individuals must be covered by a high deductible health insurance plan. The high deductible health insurance plan can be an individual or employer plan. An individual cannot be covered by any other health insurance or Medicare. In 2006, the high deductible health insurance plan must provide for at least a $1,050 annual deductible for individual coverage or $2,100 for family coverage with out-of-pocket costs not exceeding $5,250 for individuals and $10,500 for families. These limits are adjusted annually for inflation.
Health Savings Accounts are not regulated by the Division of Insurance in the same manner as other health insurance policies. If you are seeking information on setting up an HSA account, the best place to start is by contacting your financial advisor or producers selling health insurance in Alaska. Producers should have knowledge of the high deductible health insurance plans that are available in Alaska and any HSAs that may be offered in conjunction with those plans.
Health Discount Plans
Many Alaskans seeking an alternative to the increasing cost of individual health insurance have been victimized by unscrupulous marketers selling Health Discount Plans (HDPs). While there are legitimate discount health plans, many operate illegally. Such plans are most often sold on the Internet for marketing purposes, direct mail, fax blasts, and telephone solicitors.
HDPs often provide limited group insurance benefits. They are not a replacement for health insurance and do not cover major medical expenses. HDPs are not insurance, are not directly regulated by the Division, and may not provide promised cost savings. The Division has found that the provider list given to consumers is often inaccurate and consumers must pay at the time of service and get a smaller discount than promised. The price of membership may be greater than the ultimate discounts received.
In response to the problem, Director of Insurance, Linda Hall, submitted Health Discount Plan legislation (HB 147) that was enacted and signed into law by Governor Frank Murkowski in 2005. This law prevents a firm from marketing an HDP in a way that makes it seem like insurance. If the law is violated, the Division can consider the firm to be engaged in unlicensed activity, and can take appropriate action against the firm.
Here are some tips if you are shopping for health insurance or a health discount plan.
- If you need individual major medical health insurance, talk to a licensed insurance producer. If you are not sure, please contact the Division.
- Legitimate HDPs will not exaggerate the potential discounts (i.e. 50-80%). Be very skeptical of an HDP solicitor who promises unrealistic discounts.
- Legitimate HDPs will state prominently on all their marketing material “This is not insurance” and will not use insurance-type terms. Alaska law forbids the use or terms such as all “pre-existing conditions accepted”, “no waiting period required”, “no one can be turned down”, or other insurance jargon.
- Alaska Law requires HDPs and their marketing firms to provide, upon request, a current provider list before and/or after the purchase. Ask for the list before you buy and after you receive it, ask your doctor if he or she is a participating provider. If you are unable to get the list and/or your doctor is unaware of the plan, don’t buy and contact the Division.
- Be careful if the HDP marketing firm uses illegal high-pressure marketing and an extreme sense of urgency, telling you that you “must act now”, or “this is one-time offer.” There is no legitimate reason to pressure you to purchase this product until you have had time to thoroughly research it. If the firm continues to pressure you, hang up the phone and call the Division.
- HDPs do not qualify as “prior creditable coverage.” This is important when changing health insurance plans, enabling you to avoid the pre-existing condition clause under your new health insurance. Legitimate discount card issuers will never suggest you drop your health insurance.
- Be very careful if you are asked for debit or credit card information or a large up-front fee. Once you have given checking or credit card information, you may find it difficult to stop additional debits to your account.
Remember, if it sounds too good, it probably is. When in doubt, check it out and contact the Alaska Division of Insurance. You can avoid being a victim of illegitimate health discount plans.