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Small Business Employee Benefits and HR Blog

Colorado Group Health Insurance Brokers Are Deceiving Employers

May 20, 2011
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Certain group health insurance agents in Colorado are telling their clients that Colorado law prohibits small employers from switching to health reimbursement arrangements (HRAs) and defined contribution health plans. This is blatantly false. Colorado

Sadly, this is not the first time Colorado insurance agents have attempted to deceive Colorado employers. In 2009, brokers and lobbyists convinced several Colorado Department of Insurance (DOI) representatives and small group brokers into misconstruing Colorado Revised Statute (CRS) 10-16-105.2. In Bulletin No. B-4.32, the DOI representatives and brokers incorrectly maintained that CRS 10-16-105.2 prohibited a Colorado small employer from setting up an HRA that reimburses for individual health insurance premiums. In an effort to put an end to this misrepresentation, Commissioner Marcy Morrison issued Final Agency Order No O-11-064 on November 16, 2010, which:

    1. Explicitly stated that employers of any size may establish HRAs that reimburse for individual health insurance premiums.
    2. Explicitly stated that CRS 10-16-105.2 does not prohibit an employer from paying for individual insurance premiums.
    3. Explicitly stated that individual policies paid for by an employee who has an HRA are subject to individual health insurance regulations (not CRS 10-16-105.2).
    4. Repealed the 2009 Colorado Department of Insurance Bulletin No. B-4.32.

On March 29, 2011, Colorado Governor Hickenlooper signed Senate Bill (SB) 11-019 into law that added the following language to CRS-10-16-105.2:


"10-16-105.2. Small employer health insurance availability program. (1.5) NOTWITHSTANDING ANY OTHER PROVISION OF LAW, A SMALL EMPLOYER THAT DOES NOT HAVE, AND HAS NOT HAD IN THE PREVIOUS TWELVE MONTHS, A SMALL GROUP HEALTH BENEFIT PLAN PROVIDING COVERAGE TO ITS EMPLOYEES UNDER THIS ARTICLE MAY REIMBURSE AN EMPLOYEE, WHETHER THROUGH WAGE ADJUSTMENTS OR HEALTH REIMBURSEMENT ARRANGEMENTS, FOR ANY PORTION OF THE PREMIUM FOR A HEALTH COVERAGE PLAN."


The intent of the bill was to encourage small employers that do not offer group health benefits to use HRAs for individual policy premium reimbursement. In reality, the added language has no legal meaning - Colorado small employers have always been allowed to pay and reimburse employees for individual health insurance.

Federal law explicitly allows Colorado small employers to use HRAs and Section 125 (Cafeteria) Plans to reimburse employees tax free for personal health insurance premiums, similar to the way employers contribute on a tax free basis to group premiums. This has been clarified with the release of numerous U.S. Treasury and State publications spelling out how employers can use HRAs and 125 Plans for tax-free reimbursement of the premiums paid for personal health insurance policies. See "insurance Premiums" in IRS Publication 502. Also see IRS Publication 969.

However, certain group health insurance agents are now using the new language to deceive Colorado employers. For example, in a mass email distributed on May 18th, 2011, a Colorado insurance agent wrote:

"There were several Health Care related bills passed this session, but you need to be aware of one bill affecting employers who pay for or reimburse employees for individual health insurance. Senate Bill 11-019 allows employers to offer list bill individual insurance on a voluntary basis for employees who did not have access to their employers group health insurance plan. The bill specifically disallows small employer groups from canceling their group plans in favor of offering individual insurance policies to their employees."

The bolded text is blatantly false! There is nothing in the passed Senate Bill 11-019 or CRS 10-16-105.2 that "specifically" (or in any way) suggests small employers cannot cancel group health insurance plans and offer individual policies to their employees! 

Under federal law, Colorado small employers can absolutely cancel group health insurance coverage, and use an IRS, HIPAA, and ERISA-compliant platform to offer defined contribution health plans and HRAs that reimburse for premiums.

Why do brokers continually misrepresent this issue? 

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