CHARACTERISTICS OF GROUP INSURANCE
Group Contract
- While individual insurance policies insure one person group insurance policies cover many people under 1 contract.
- That reduces the plan cost and lowers premiums.
- Group insurance premiums are less than individual coverage.
Two parties in the group insurance contract are the insurer and the sponsoring group. The policyholder/owner is the sponsoring group and it controls the master policy.
CERTIFICATE OF COVERAGE
GROUP POLICIES
The individual members covered by the group plan are not parties to the group insurance contract and have no authority to make decisions regarding the plan. Members receive a certificate of coverage that provides evidence of coverage, who is covered by the plan, and summarizes the benefits.
EXPERIENCE RATING
In general, the premium cost for group insurance is based on EXPERIENCE rating, a method of establishing the premium on the groups previous claims experience.
COMMUNITY RATING
Sets premium costs by using the same rate structure for all subscribers to a medical expense plan, no matter what their past loss experience has been.
TYPES OF ELIGIBLE GROUPS
The general eligibility rule is; a group must have been formed for a purpose other than obtaining insurance for its members. This defines a natural group. The insurance plan must be INCIDENTAL to the group rather that its primary reason for being.
-Group insurance eligibility is limited to ONLY the following types of groups.
- An employer may sponsor a group insurance plan for its employees. Employer group plans/employee group plans
- A multiple employer Trust (MET) - is a group of small employers in the SAME industry who either form together in order to purchase a group insurance as on entity of self-fund plan.
- A Labor Union- may sponsor a group insurance plan for its members, or 2 or more labor unions may join together to provide group insurance for their collective members. Labor union plans are sponsored under a TAFT-HARTLEY TRUST
- a trade, professional, or other type of association may sponsor a group plan for its members, these are known as association group plans.
- A lender, or creditor, may sponsor a group health (disability) insurance plan for its group of debtors. This is known as group credit disability insurance.
EMPLOYER GROUP HEALTH INSURANCE
UNDERWRITING CRITERIA
Group insurance underwriters do not evaluate the risk represented by each individual. They look at the risk presented by the characteristics of the group and the plan as a whole. Once the group plan is in force, premiums are based on the experience of the group and can change at each renewal.
Group underwriting criteria includes the following:
- Size of the group
- Composition of the group
- Flow of members through the group
- Plan design
- Contributory or Noncontributory
- Persistency
- Administrative capability
ELIGIBILITY FOR COVERAGE
GROUP HEALTH INSURANCE
Employee Eligibility
-Employers cannot discriminate with group benefits. All employees that are eligible can enroll regardless of their age, handicaps, or sex. Pregnancy and maternity must be treated like and other covered condition.
Employers can establish basic employment criteria. The employee must be:
- full-time, and
- actively at work– that is , not on disability leave or other inactive status.
Employers may also exclude union workers as a class, since their compensation and benefits are covered by a collective bargaining agreement.
DEPENDENT ELIGIBILITY
GROUP HEALTH INSURANCE
Coverage must also be made available to participating employee’s spouse or children up to age 26. This includes step-children and adopted children, and it applies whether or not the child is married or a student. Coverage may also be made available to a participating employee’s dependent parents.
Many states require that children older than age 26 be covered by a plan if they are mentally or physically disabled and unable to support themselves.
PROABTIONARY PERIOD
GROUP HEALTH INSURANCE
During a probationary period new employees must wait before they can enroll in an employer’s group health insurance plan. Probationary periods typically range from 1-6 months.
ELIGIBILITY PERIOD AND OPEN ENROLLMENT
GROUP HEALTH INSURANCE
When the probationary period ends, new employees can enroll in the group health insurance plan during the eligibility period or enrollment period, which is typically 30 or 31 days.
Most states require insurers to also offer an open enrollment period every year. Individual who declined coverage during the initial eligibility period can enroll in the health plan this period without providing evidence of insurability.
Late enrollees- individuals who want to enroll for coverage at any time other than the initial eligibility period or an annual open enrollment period may be required to provide evidence of insurability.
COORDINATION OF BENEFITS
Many working couples are covered as employees under their own employer’s plan, and each is also covered as a dependent under their spouse’s plan. This type of double coverage can result in individuals being over insured- which means the individual is able to collect benefits in excess of the amount of the loss.
To avoid this situation, group health insurance policies contain a coordination of benefits provision which says that if a loss is payable under 2 group health insurance plans, one plan will be considered primary and the other will be considered secondary.
The primary pays benefits up to its limit first, the secondary insurance plan will pay up to its limit for costs not covered by the primary plan.
A different rule called the “birthday rule” is used for determining the primary plan if a married couple has children. The parent whose birthday comes earliest during the year will use their plan as primary coverage for their children.
MARKETING CONSIDERATIONS
GROUP HEALTH INSURANCE
States regulate the marketing and advertising of accident and health insurance policies to ensure truthful and full disclosure of pertinent information when selling these policies. As a rule, the insurer is held responsible for the content of advertisements of its policies. Advertisements must:
- not be misleading or obscure
- clearly outline all policy exclusions or limitations on coverage as well as policy benefits.
REGULATORY JURISDICTION
There are no regulatory jurisdiction issues when an employer purchases a group insurance plan from an insurer domiciled in the employer’s home state. Many insurers and employers however do business in multiple states and for this reason the insurance regulator in each state involved would oversee these transactions.
A group health insurance policy is regulated by the state in which it is delivered, assuming that the state is also where the employer has it’s principal business office.
CHANGE OF INSURERS AND LOSS OF COVERAGE
Coinsurance and Deductible Carryover
When a group health insurance policy is replace by another plan, the new insurers will allow coinsurance and deductibles paid under the old plan to count toward the new plans requirements. This eases the transition to the new plan for covered employees.
No Loss No Gain
Many states have no loss, no gain statues that require benefits for ongoing (disability) claims that started under an old plan to continue without imposing the new plan’s eligibility requirements.
EVENTS THAT TERMINATE COVERAGE
GROUP HEALTH INSURANCE
Coverage under a group health insurance plan may be terminated when any of the following occur:
- The employer discontinues the plan or discontinues coverage for a certain class of employees
- The group policy lapses because the employer did not pay premium
- The employee or their dependent’s coverage lapses because they did not pay premium
- A covered employee quits, is laid off, or they lose their full-time employment status.
- A spouse and children lose connection to the plan due to a divorce from the insured employee or the employee dies, terminates employment, or otherwise becomes ineligible for coverage.
- A non-disabled dependent child reaches age 26
EXTENSION OF BENEFITS
GROUP HEALTH INSURANCE
Extension of benefits requires by state laws, that benefits paid by an in force policy continue after the policy is terminated. Some states require an extension of benefits to a totally disabled member at the time of a policy discontinuance.
Continuation of Benefits
The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a FEDERAL LAW that requires employers with 20 or more employees to allow former employees and their dependents to continue the benefits provided by the employer’s group health insurance plan.
Coverage may be continued for 18-36 months. Employees or dependents must pay the entire premium for the coverage. COBRA specifies rates, coverage, qualifying events, qualifying beneficiaries, notification procedures, and time of payment requirements for continued insurance.
COBRA QUALIFYING EVENTS
A qualifying event occurs when an employee, spouse, or dependent child lose coverage under the group insurance contract, these include:
- death of covered employee
- termination of a covered employee- except for gross misconduct
- reduction of work hours of a covered employee
- Medicare eligibility for a covered employee
- divorce or legal separation of a covered employee from the covered employees spouse
- termination of a child’s dependent status
- bankruptcy of the employer
COBRA QUALIFIED BENEFICIARY
A qualified beneficiary is any individual covered under an employer-maintained group health plan on the day before a qualifying event. Usually this includes:
- covered employees
- spouse of covered employees
- dependent children of covered employees, including children born or adopted during the first 18 months of a benefit continuation period.
COBRA NOTIFICATION STATEMENTS
Employers must provide notification statements to individuals eligible for COBRA continuation within 14 days. This notification must be provided when
- a plan becomes subject to COBRA
- an employee is covered by a plan subject to COBRA
- a qualifying event occurs
The company must notify new employees of their rights under COBRA when they are informed of their employee benefits.
The option to elect continuation expires 60 days after an individual receives the notification.
COBRA
DURATION OF COVERAGE
The maximum period of coverage continuation for termination of employment or a reduction in hours of employment is 18 months. For all other qualifying events, the maximum coverage period of coverage continuation is 36 months.
Certain disqualifying events can result in termination of coverage before the specified time periods. These disqualifying events and their dates are as follows:
- the first day a premium is overdue
- the date the employer ceases to maintain any group health plan
- the date on which the individual is covered by another group plan
- the date the individual becomes eligible for Medicare.
The coverage MUST be the same the insured had while employed. The premium must also be the same, except now the terminated employee must pay the ENTIRE premium, including any portion previously paid by the employer. The terminated employer may also have to pay an additional amount each month not exceeding 2% of the premium to cover the employer’s administrative expenses.
OMNIBUS BUDGET RECONCILIATION ACT OF 1989 (OBRA)
OBRA extended the minimum COBRA continuation of coverage period to 29 months for qualified beneficiaries disabled at the time of termination. The disability must meet the Social Security definition of disability. The plan can charge qualified beneficiaries an increased premium, up to 150% of the group premium, during the 11- month disability extension (months 19-29)
HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT
HIPAA
HIPAA took effect July 1, 1997. It ensured portability of group insurance coverage and included various mandated benefits that affect small employers, the self employed, pregnant women, and mentally ill.
Pre-existing conditions- A group health plan may not define a pre-existing condition more restrictively than: a condition in which medical advise, diagnosis, care or treatment was recommended or received during the 6 months prior to the enrollment period.
- Guarantees coverage for a 48 hour hospital stay for new mothers and their babies after regular delivery (96 hours for c-section)
- Expands coverage for mental illness by requiring similar coverage for treatment of mental and physical conditions.
- Small employers cannot be denied group health insurance coverage because one or more employees are in poor health.
Privacy disclosures
- The applicant must be given notice of the following
- the insurer’s privacy practice’s
- the applicant’s rights to maintain privacy
- the applicant’s opportunity to opt-out
- The producer must provide the applicant with the Notice of Insurance Information Practices.
ERISA
EMPLOYEE RETIREMENT INCOME SECURITY ACT
ERISA mandates very detailed standards for fiduciaries and other parties-in-interest of employee benefit plans, including group insurance plans. This means that anyone with control over plan management of plan assets of any kind must discharge that fiduciary duty solely in the interests of the plan participants and their beneficiaries. Strict penalties are imposed on those who do not fulfill this responsibility.
Reporting and disclosure
- ERISA requires that certain information concerning any employee welfare benefit plan, including group insurance plans be made available to plan participants, their beneficiaries, the Department of Labor and the IRS. Examples of the type of information that must be distributed include:
- a summary plan description to each participant and the DOL
- a summary of material modifications that details changes in any plan description to each plan participant and the DOL
- an annual return or report submitted to the IRS
- a summary annual report to each plan participant
- any terminal report to the IRS
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Virginia State Laws and Regulations23
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NC State Laws and Regulations35
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New York Laws and Regulations59
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Pennsylvania Laws and Regulations52
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Texas State Laws and Regs57
