California Law AB 1672 Explained:

Small business owners in California received extra protection under the law for their rights with group health insurance when the law AB 1672 was passed in 1992. However, many business owners do not understand what this law entails and how it can provide them protection when they are seeking a new group health plan or dealing with a current group health plan.

Let's take a look at what changes law AB 1672 brought to the insurance industry and small business owners.

Portability - This new requirement forces group health insurance carriers to provide coverage for employees covered under a group health plan, even if they have a pre-existing condition. In addition, exclusion periods for coverage for a pre-existing condition were quite long before 1992. This new law means that insurance companies may not deny coverage, and if there is an exclusion period for a pre-existing condition, it must be kept to six months to one year. If an employee was covered by a health plan before joining the group health plan offered by their new employer, this coverage must count towards this exclusion period, as long as the employee's coverage was enacted within 62 days of losing the previous policy.

Guaranteed Issue - In the past, insurance companies did not offer small business owners many alternatives when it came to group health plans, and in many cases, refused to offer small business owners any type of group health plan. This is due to the fact that small business insurance plans are considered risky and more costly than large group health insurance plans. Under law AB 1672, this can no longer take place. An insurance company must provide a small business with a group health insurance policy if they request one.

Guaranteed Renewal - Under law AB 1672, a group health insurance provide must renew a group health plan for a small business, as long as two conditions are met: 1. There has been no fraud with the policy and 2. All the premiums have been paid. This prevents insurance companies from offering a small business a group health plan and then arbitrarily canceling it later on.

Now that we've covered what changes have taken place within group health plans, we will move on to how they have changed financially since 1992.

Rating Protection - Although California does not regulate or set down what a group health insurance provider can charge a small business for a group health insurance policy, law AB 1672 did set limits on how much can be charged. In the past, insurance companies could set different rates for different businesses, based on the health of their employees. These rates are now set to a standard, which is figured by the use of allowable factors. A plan cannot cost more than 10% of the standard rate under this new law.

Allowable Rating Factors - We mentioned above that standard rates are figured by using allowable factors. These factors are: age, geographic location and family size. This prevents insurance companies from using the health status of employees to determine the rates for a group health plan.

Marketing Provisions - Currently, an insurance company must offer access to all of their available group health plans to small businesses. Previously, insurance companies did not provide information on certain plans that they did not want to offer to small business owners.

Enforcement - The above new provisions are enforced by the use of a regulatory board. Insurance companies must submit reports and documentation on the plans they offer, and how they determined specific rates. The penalties for failing to file this information are steep and are used to prevent insurance companies from abusing this new law.

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