AB 1672: what is it and should I care?

WHENEVER I speak with small business owners about offering their employees health insurance I hear a number of common themes:

If my company applies for health insurance we will be turned down.

If one of my employees gets really sick our rates will skyrocket.

If one of my employee gets really sick we will be canceled.

Firms with sicker employers can be charged up to twice as much for health insurance.

I can't afford health insurance because small companies can't get the same prices as larger companies.

I have concluded that small business owners, those with 2-50 employees, do not understand the process of obtaining group health insurance and do not know that an important law, passed in 1992, protects their companies and employees.

AB1672 was passed to help small business owners and their employees obtain health insurance, maintain long-term coverage and enable employees to change jobs without losing their insurance.

There are four major protections in AB 1672:

* Guaranteed Issue

* Guaranteed Renewal

* Premium Protection

* Portability for employees

Let us take a look at each one of these and how it protects the business owner and its employees.

Guaranteed Issue means that companies cannot be turned down for group health insurance. It does not matter what type of business you have or what industry you operate in. It does not matter if you have two employees with cancer, or three with heart problems or five with chronic illnesses such as diabetes. It doesn't matter if your employees are in their 20s or 60s. If you are an insurance company in California and you sell group medical insurance, you cannot discriminate for any of these reasons. You cannot be turned down!.

Guaranteed Renewal means that companies cannot be canceled due to medical conditions or utilization. Once a company has group medical insurance, as long as they pay their premiums in a timely fashion they cannot be canceled. It doesn't matter if employees get sick or go to the doctor frequently, an insurance company cannot cancel a group due to increased health risk, utilization, or any other risk factor.

There is premium protection for small employers. AB1672 limits how much insurance companies can vary rates based on various risk factors such as industry, geographical location, or health status of employees. For each product, the insurance company sets a standard rate for each age range, ZIP code and number of people covered such as employee, employee and spouse and family. This Standard Employee Risk Rate is by insurance companies to set rates. They can only adjust rate by the Risk Adjustment Factor or RAF, up to 10 percent higher or lower than the standard rate. This 20 percent range sounds high at first but some states have a 50 percent range and no state has less than a 10 percent range. In addition, a company's RAF can be changed at the annual renewal, but it can never go over 10 percent of the standard rate. If an insurance company wants to increase rates, however, they have to raise rates for every company with the same product in the state. They can't single your company out for any reason.

Portability for employees is the final protection. Prior to AB1672 employees, with health issues, were scared to leave a job if they had health insurance for fear of losing coverage. AB1672 protects workers by setting rules for pre-existing conditions. If an employee joins your company and had prior continuous coverage there are no pre-existing conditions and they can continue to be treated for any malady without the fear that the insurance company will not pay the claim. If they do not have existing coverage, the longest waiting period is only 6 months and most HMO plans have no waiting periods.

In summary, AB 1672 was much needed legislation that has created a great environment for small employers to offer health insurance to their employees. The business has protections regarding renewals and rates spiraling while their employees have protections that enable them to change jobs and explore opportunities without losing their health insurance.

Barry. S. Cohn is President & CEO of RGEB Employee Benefits, a group insurance and employee benefits consulting firm headquartered in Tarzana. He can be contacted at [e-mail]