The Bluegrass State is trying to stop small employers and insurers from using health coverage purchased through the individual market to escape small group health plan underwriting restrictions.

Even if small employers simply give workers cash that the workers can use to buy their own coverage, Kentucky may treat those arrangements as small group health benefit plans, according to Kentucky Advisory Opinion 2006-03.

In Kentucky, individual policies issued to individual employees of a small employer must be issued on a guaranteed basis if issued “through or with the permission of a small employer,” Julie Mix McPeak, executive director of the Kentucky Office of Insurance, writes in the bulletin.

An employer or its insurer does not have to call a program a small group health plan for it to be treated as a small group plan, McPeak writes.

McPeak says Kentucky may apply the guaranteed issue underwriting requirement to a health coverage program that uses individual policies if any of the following events occur:

1. A small employer changes from providing small group coverage to providing insurance for employees through individual policies, once the group coverage expires.

2. The insurer’s agent contacts the small employer to conduct business.

3. Group and individual quotes are requested and given.

4. The insurer coordinates administration of policy with the employer.

5. A small employer pays all or a percentage of the premiums for its employees to the insurer either directly or indirectly through a reimbursement arrangement.

6. Payroll deduction of employees’ premium occurs.

7. All employees are with the same individual carrier, or the same agent issues individual policies to all or most of the employees.

8. The same agent offers different individual policies from different companies.

9. The employer gives specified agents or companies exclusive access to employees.

10. Solicitation, negotiation and sale are done during work hours at the invitation of employer or on employer’s time.

An insurer can issue small group coverage in the form of individual policies, but “first, the insurer must issue the individual policies on a guaranteed-issue basis to all full-time employees and their dependents,” McPeak writes.

The individual policies also must comply with Kentucky limits on pre-existing condition provisions in small group policies, McPeak writes.

Kentucky notes that the advisory opinion expresses the current position of the Kentucky Office of Insurance and is not legally binding on the office or the reader.

The Texas Department of Insurance issued a similar bulletin a month ago.

A copy of the bulletin is on the Web at Document Link