GROUP HEALTH INSURANCE

Most people have a general idea of the nature of ‘group’ coverage. The

most common type of group coverage is provided via employment. Many

employers provide group health coverage as a benefit to their employees, either

by paying the entire premium or sharing in the premium.

In a group situation, a single policy covers a specific group of people as

opposed to a single person as individual policies do. Because of this special

nature, insurance companies have to make certain that the number of people

covered by a group policy stays at or above a certain level.

Some states also have their own regulations that control the minimum

number of people required under a group plan. The number can differ from state

to state so check local regulations.

In order to be considered a group, the entity must have the same employer

or other commonality. As we discussed above, there are many different types of

groups that may be considered, but for our purposes we will consider an

employer/employee group.

A single master policy is issued to an individual or entity representing the

group of people. As we stated, for our purposes we will call this the employer. It

is the employers responsibility to apply for coverage for the group, own and hold

the master policy and collect and make premium payments to the insurer when

due.

Eligibility and eligibility period. In an individual policy situation where

each person is evaluated separately in terms of risk, the normal practice in a

group situation is to include all eligible employees regardless of physical

condition or age.

On condition must be met, however, for all people regardless of their

physical condition before they may be included in a group plan. That condition is

that they must apply for coverage during a specified eligibility period. Failing to

enroll in that time period will result in a requirement to take a physical

examination and they will be selected on an individual basis just as if the policy

were an individual policy. An initial 90 day employment period is typical for

group coverage, after which the employee has a 31 day eligibility period. If the

employee fails to apply during that eligibility period, then the employee will be

required to take a physical examination and must qualify as if on an individual

basis.

This is how an insurer can afford to cover a group of people without

individual selection. Otherwise some people might choose not to enroll until they

discover they have an illness or they become disabled, and requiring a physical

exam after the eligibility period helps to preclude this event.

This same concept also applies to determining who receives specific

benefits. For example, an employer may choose to offer certain groups of people

within the total employee group, a different set of benefits.

For instance, this can award certain benefits for those employed less than

5 years and a different set of benefits for those employed over 5 years. This

arrangement can be differentiated in many other ways as well using salary level,

position within the company and so on. The only stipulation is that such

divisions may not have an adverse effect on the insurer.

Further, any such special benefit provision must apply to everyone within

that specified group who meet the selected criteria. All who are designated must

automatically become eligible as soon as they qualify.

How premiums are paid depends on which of two different types of plans a

group selects. The two types are contributory and non-contributory. In the case

of non-contributory, the employer pays the full cost of the premium, while the

contributory type requires a shared cost between the employer and employee.

When applying for a contributory group plan, the employer needs to solicit

enough employees to demonstrate to the insurer that a sufficient percentage want

the coverage and are willing to pay a share of the premium. For a noncontributory

plan, 100% of the eligible employees must be included.

There are several considerations that the insurer has when determining

the group premiums. Average age of the group is an important consideration.

The higher the average age of the group, the more instance of potential claims

resulting in a higher premium.

Another consideration is the maximum indemnity period for loss of time

benefits. The longer an insurer pays disability benefits, the higher the rate will

be.

If a group policy covers occupational illness and/or injury, the degree of

occupational hazard becomes an important factor. Again, the higher the

occupational hazard, the higher the rate.

Group policy types. Group health plans may include any of several types

of insurance discussed earlier. With no intention of becoming repetitive, let’s

review some of those individual coverage’s. A group health plan doesn’t have to

include all coverage’s although most will include at least two or more. In

addition, disability income coverage may be offered in a group arrangement but it

is usually separate from hospital, medical and surgical coverage.

Therefore, the first possible group coverage pays benefits for lost earnings

resulting from accident or sickness and is commonly called disability insurance.

Accidental loss of life and accidental loss of one or more limbs or eyesight

is another common type.

Hospital expense is another type of potential group coverage. These

policies can pay for hospital expenses whether inpatient or outpatient. Fees of an

attending physician during hospital treatment may be covered. Some types of

group policies may only cover surgical expenses.

Further, there are a number of provisions that apply only or primarily to

group policies. These provisions:

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We discussed earlier that not all members of a group are necessarily

eligible under a group plan. Also, the employer may set certain eligibility

requirements.

Often working couples both qualify for group health insurance through

their employment whereby the spouse is covered by each plan. To prevent

possible abuse, special provisions are required by law in most states. This is

referred to as a Coordination of Benefits Provision and allows insureds as much

coverage as possible while doing away with over insurance. Receiving dual

benefits constitutes fraud and is punishable by law.

Businesses that offer group coverage are subject to certain provisions of

the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA).

Terminated employees of companies that regularly employ more than 20 people

may be eligible for extended group health insurance coverage after they leave

their jobs.

COBRA requires that some group health plans offer a continuation of

coverage at group rates or slightly higher to departing employees for up to 18

months. For dependents of deceased employees and in some other special cases,

continuation of coverage can last for up to 36 months.

In most cases, if an employer discontinues group insurance, employees

must be given the opportunity to convert to individual insurance without a

medical exam.

Self-insurance is a situation where an employer provides health benefits to

its employees by depositing money in a special self insured fund which pays for

reimbursement of medical expenses from the fund. This is not a viable option for

most employers which must be large enough to have a base from which to predict

expected expenses.