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What is a Health Insurance ‘carve-out’? Should I consider it?

Posted on Date: Nov 1, 2019

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Answer: When businesses face challenges getting enough employees to participate in their health insurance benefit (enough to meet the minimum participation rate set by the insurance company), they often use a so-called “carve-out” to offer the benefit to a smaller subgroup of employees. For example, if an employer offers health insurance to salaried employees, rather than salaried and hourly, they are more likely to be able to meet the participation-rate requirements. Carve-outs also work when an employer wants to offer different insurance benefits to different grades of employees. Common examples of carve-outs are “management only,” “salary only,” and “union only.”   

The insurance company has the right to decide whether it allows carve-outs and it may also put limitations on which kinds of carve-outs it accepts. There are also regulatory limitations with respect to insurance carve-outs that need to be taken into consideration. Businesses considering a carve-out should work closely with an insurance broker to ensure they’re following all the employment laws associated with a valid carve-out.   

For more information, contact Steven Chapkin at steven.chapkin@aafd.org. Steven is available to answer your questions regarding health care, benefit options, policy, and compliance. Remember, we are now in insurance enrollment season – the perfect time to compare the AAFD’s Lifestyle Health Plans for your business.

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