Permissible Discrimination in Health Benefits

Friday, February 27, 2015

The intense regulation of health care benefits, especially with respect to the Affordable Care Act, has created much confusion among employers. As a result, many employers do not understand that they may offer different levels of coverage to different categories of employees.  Here are the rules.

First, employers cannot base eligibility for health benefits on the existence of a “health factor” that affects an employee or the employee’s dependents.  A health factor includes:

  • Health status
  • Medical condition, including both mental and physical illnesses
  • Claims experience
  • Receipt of health care
  • Medical history
  • Genetic information
  • Evidence of insurability
  • Disability, and
  • Any other health status – related factor established by regulation

Thus, employers cannot refuse to offer health benefits because an employee or the employee’s dependents are, for example, diabetic, have a heart condition, have a history of mental illness, are genetically predisposed to disease, or are disabled.

This does not mean that an employer cannot make distinctions and offer different types of coverage to different categories of similarly situated employees. These distinctions must, however, be based on employment-based classifications that have been established in connection with the employer’s usual business practices.  If the employer classifies employees for reasons other than eligibility for health coverage ― for example, eligibility for non-health benefits or other terms of employment ― offering different levels of coverage is allowed so long as they are made in good faith and without the underlying intent to avoid offering coverage for health reasons. Permissible classifications include:

  • Full-time versus part-time status
  • Different geographic location
  • Membership in a collective bargaining unit
  • Date of hire
  • Length of service
  • Current employee versus former employee status, and
  • Different occupations

Employers may, and often do, provide different benefits to salaried versus hourly employees, to skilled and unskilled workers, to employees at different work locations, and to new hires.  So long as the distinction created is not directed at individuals or is seen as a way to avoid the restrictions on discriminating on the basis of a health factor, employers have considerable leeway in providing different health benefits to differently situated employees.