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State and federal law makes a distinction between "small employers" and "large employers" for insurance purposes. (The term "mid-sized employer" is not defined by the Texas Insurance Code and is used for practical purposes only. The same laws and rules that govern large employers also apply to mid-sized employers.) Mid-sized and large employers are exempted from certain protections against rate increases and have different responsibilities regarding the level of coverage a plan must provide. For health coverage purposes, a business is considered to be a mid-sized or large employer if it has more than 50 full-time employees, defined as employees who customarily work at least 30 hours per week and are not seasonal or contract workers.

If your business instead qualifies as a small employer, defined as having between 2 and 50 employees, you should refer to the Texas Small Employer Resource Page.

1. Mid-sized and Large Employer Coverage Overview
2. Indemnity vs. Managed Care Coverage
3. Self-funding A Health Plan
4. Coverage Rights and Protections

1. Mid-sized and Large Employer Coverage Overview

It is a business' number of eligible employees - not total employees - that determines whether or not it's considered a small employer under Texas insurance law. For example, if your business has 70 total employees, but 30 of them are part-time or contract workers, it would not qualify as a large employer for the purpose of health coverage.

Texas law generally provides mid-sized and large employers with increased flexibility in terms of how a health plan may be offered, and contains fewer requirements for specific coverages that a plan must contain. Most significantly, these employers may only offer coverage as a benefit to certain specific classes of employees, such as employees above a certain pay grade, or who have maintained employment for a certain number of years. An employee's age, prior claims history or any health-related factors may never legally be used as a basis for limiting or denying plan membership, however.

No Texas employer, regardless of size, may require employees to participate in a health plan as a condition of employment. Nor may an employer exclude any eligible employee from participation for reasons based on the individual's age, medical condition, medical history or other health risk factors.

• A list of Texas-Licensed Mid-sized and Large Employer Health Carriers is Available Here.

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2. Indemnity vs. Managed Care Coverage

The two primary approaches to health care coverage are typically called known as "indemnity" and "managed care." One of the first decisions that a business providing health coverage will have to make is whether it will offer a plan that is strictly one type or the other, or a plan that incorporates various features of the two.

Each approach has its trade offs and both have their critics. In general, indemnity coverage offers greater freedom of choice in obtaining health services but costs more, whereas managed care is more restrictive but costs less. A business may elect to offer multiple types of health coverage and allow employees to decide which best meets their needs. In this situation, typically the employees who select the more expensive plan pay the difference in price.

Indemnity plans are administered by insurance companies, and are what many people think of as a traditional health insurance. An indemnity health plan will cover the services of any physician, provider or hospital the consumer chooses as long as the care is medically necessary and consistent with the terms of the policy.

Managed care is an alternative approach that has gained popularity within the last two decades as a tool to mitigate rising health care costs. Typically a managed care plan will cost significantly less than an indemnity plan covering comparable conditions and services. A primary way managed care achieves savings by contracting directly with physicians, hospitals and providers to provide services at pre-negotiated rates. A managed care plan can either be administered by an insurance companies or special network of health providers called a "health maintenance organization" (HMO).

Under the strictest form of managed care, which can only be provided by an HMO, members are limited to receiving care only from providers within the HMO network, except under rare circumstances and medical emergencies. Other types of managed care allow members to go outside the network for services, however they must typically pay up to twice as much - or more - out of pocket toward the cost of care than they would pay by remaining within the network.

HMO managed care plan members are also typically required to select a "primary care physician" (PCP) as a condition of membership. This doctor becomes the supervisor of the individual's medical care and liaison with the other providers in the network. Approval by the PCP is typically required before the plan will cover any extensive or non-routine medical care, or consultation with any specialist physician. Supervising members' care so that only necessary health services are provided is another way HMO plans work to control costs.

The laws and rules governing HMOs are extensive and in many instances quite complex. For more information, refer to the TDI publication Health Maintenance Organizations.

"Preferred Provider Option" (PPO) plans, which are the managed care plans that are offered by insurance companies, and "Point of Service Option" (POS) plans, which are offered by HMOs, are the two most common 'sub-types' of health plans that combine the features of managed care and indemnity coverage. Under these plans pre-approval for services from a primary doctor is not required, and care from any provider is covered, although both types of plans are also affiliated with a managed care network that members can opt to use at a substantial discount.

Apart from a few minor differences, as far as plan members are the same PPO and POS plans essentially work in the same way. POS plans are generally somewhat less expensive. The key difference between the plans is in how they are financed internally. In a PPO plan, the insurance company typically pays providers some discount percentage of their normal fee from services. In a POS plan, providers are typically paid a flat fee per patient, regardless of the expense of the care administered.

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3. Self-funding a Health Plan

Many large employers of businesses with significant financial resources elect to "self-fund" their employee benefit plan. In effect the employer becomes its own insurance company, itself accepting the full financial risk of coverage and paying claims using its own funds. Self-funding can be a way to save money by avoiding the administrative overhead and company profit that are factored into the price of a private sector plan.

It is extremely important for a self-funding employer to be certain that it has sufficient resources to pay health claims that arise, however, or a serious budget shortfall could result. Self-funding further requires an employer to accept many legal responsibilities that would otherwise be handled by the carrier. Employers considering self-funding a health plan should thoroughly consult legal counsel to be sure they understand the responsibilities involved.

Self-funded plans are primarily regulated according to terms of the federal Employee Retirement Income Security Act (ERISA). The Employee Benefits Security Administration (EBSA) of the US Department of Labor is the primary regulating agency.

• EBSA Homepage.

Many businesses contract with third-party administrators (TPAs) to administer the day to day operations of the plan. This incurs some additional cost, but it is generally less expensive than purchasing coverage outright. A TPA may either be an insurance company or a separate company that administers self funded plans exclusively. The TPA manages administrative functions such as claim processing, collecting employee premiums and managing enrollment. The TPA assumes no risk of coverage, however. In Texas, TPAs must maintain a valid TPA license to legally operate in the state.

• A list of currently licensed TPAs is available from the TDI website.

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4. Coverage Rights and Protections

State and federal law contains numerous protections for both consumers and employer health plan sponsors. Three of the most important rights include the following:

Continuity of coverage. A health carrier may not refuse to renew an employers existing health plan while it continues to offer the plan to other employers in the same market, except for reasons of fraud, nonpayment, or violation of certain health plan terms. However, a carrier may discontinue offering a plan in the market altogether. In this case, the carrier must allow the employer to enroll in any other plan it offers in that market. If a company decides to withdraw from the market altogether, it must provide the employer and the Commissioner of Insurance 180 days notice before non-renewal of coverage. Carriers that withdraw completely are prohibited from doing business in that market for five years.

Portability of coverage. The federal Health Insurance Plan Portability and Accountability Act (HIPAA) and other laws require carriers to provide employees who new plan members with credit toward any "preexisting condition" waiting period for time the new member spent previously covered by another creditable health plan during the prior year. A pre-existing condition is defined as any condition for which an individual has received "medical advice, care or treatment" during the six months prior to joining a health plan. By law, carriers may impose a waiting period of up to 12 months before extending coverage for pre-existing conditions to new members, even though the conditions are normally covered by the policy. Preexisting condition rules protect carriers from the possibility of individuals purchasing health coverage only because they are already sick or ill and know they need serious treatment.

Under HIPAA, If a new health plan member was previously enrolled in another health plan during the year prior, a carrier is required to apply the time spent under the old coverage toward any waiting period of the new coverage on a month by month basis. For example, an individual with no prior coverage who has a pre-existing condition who joins a plan with a 12-month waiting period would have to wait 12-months before any treatment for the condition will be covered. However, had the same individual been previously enrolled in another health plan in the eight months prior to joining the new plan, that time would apply to the new plan's waiting limit. He or she would therefore only be required to undergo a four month waiting period (12 - 8 = 4). An individual with previous coverage during the full twelve months of the year prior would have no waiting period at all.

HIPAA regulations can be one of the most complex areas of health coverage law. HIPAA.org is a federally administered website created to assist health plan providers with legal compliance.

Pre-existing condition limitations. State and federal law prohibits employer health plans from treating pregnancy or genetic information as pre-existing conditions. In plans that pay for prenatal care and childbirth, this means these services are covered even if a woman is pregnant when she joins a plan.

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