Chapter 13: Group Health Insurance Flashcards
Characteristics of Group Insurance
- Similar in nature to Group Life Insurance
- Only nonoccupational (not work-related) injury or disease
- Must be considered a natural group
- Group sponsor receives Master Policy, while individual employees receive a Certificate of Insurance and a Summary of Benefits
- All employees have same coverage
Types of Eligible Groups
- Multiple Employer Trusts (METs)
- Multi-Employer Welfare Associations (MEWAs)
- Labor Unions
- Associations
- Blanket Insurance
- Customer Groups
- Risk Pools
Multiple Employer Trusts (METs)
Entities formed by unrelated businesses in the same or related industrial classification. Trust is organized under a third-party administrator (TPA) or sponsor and allows for small to medium-sized employers to combine their employees into a single, larger group in order to obtain more favorable life and health insurance premiums and increased benefits. Characteristics include:
- The sponsor or TPA develops plan, sets the participation rules and administers the plan
- Due to the smaller size of the individual companies participating in the Trust, group health coverage is almost always fully insured and backed by an insurance company
- The Trust gets the Master Policy
Multi-Employer Welfare Associations (MEWAs)
Generally formed by larger employers for the purpose of obtaining more favorable rates for life and health insurance. These groups primarily consis of employers who self-fund their employees’ health insurance benefits. The employer assumes responsibility for providing payment of its own employees’ claims through a TPA and do not have the safety net of the backing of an insurance company.
Labor Unions
The Taft-Hartley Act was an amendment to the National Labor Relations Act. Among the provisions of the Act, labor unions were permitted, under certain conditions, to establish primarily employer-funded trusts for the provision of health and welfare benefits to union members.
Associations
Must have at the outset a minimum number of members, usually 100, and is organized for a purpose other than buying insurance. The association would be the Master policyholder and handles all funds for the group.
Ex. Teacher associations, trade associations, professional associations, and alumni associations.
Blanket Insurance
Group blanket insurance covers a group of individuals whose membership changes frequently, such as students, passengers traveling on a common carrier, sports teams, volunteer firefighters, or other groups of people, while being exposed to a specific risk.
Customer Groups
Customer based groups include depositor, creditor, and other debtor groups
Risk Pools
High-risk pools are private, self-funded health insurance plans organized by a state to serve high-risk individuals who meet enrollment criteria and do not have access to group insurance. In most states, they are independent entities governed by their own boards and administrators, but in some states they function as part of the state’s department of insurance.
Eligibility for Coverage
- Must be considered full time
- Work minimum of 30 hours/week
- Must be actively at work before they can enroll
- Employer cannot discriminate when determining eligibility and employee benefits
Open Enrollment Period
- Underwriter’s greatest concern is adverse selection
- Group plans have a probationary period set by the group sponsor
- Once probationary period is over, employee has 30 days to enroll - coverage guaranteed if employee enrolls during this time.
- Employees who do not enroll during this period are considered late enrollees and must provide evidence of insurability unless they wait until the next open enrollment period.
- Annual enrollment offered each year
- Employees can make changes to the plan outside of open enrollment if they have a change in status (going from part-time to full-time, get married, or add/drop dependents).
Dependent Eligibility
- Employee’s spouse (Domestic Partner if recognized by the state)
- All children from birth until age 26 - disabled children who are not capable of self-support may continue beyond 26 (as long as they are chiefly dependent upon employee for support). Proof of child’s incapacity and dependency must be furnished to insurer within 31 days of the child’s attainment of the limiting age.
Nonduplication and Coordination of Benefits
Method of determining primary and secondary coverage when an insured is covered by more than one group policy. Helps to prevent nonduplication (or overinsurance) which is having more than 100% of a claim paid. Plan that covers that person as an employee is their primary coverage, and coverage as a dependent under a spouse’s plan is secondary.
If children are covered by more than one group plan, the “birthday rule” applies - the plan covering the parent whose birthday occurs first in the calendar year will be the children’s primary coverage. Secondary carriers will only pay claims that are not covered or not paid in full by the primary carrier, and only to the extent that the claim would be paid if the secondary carrier was in the primary position, such as deductibles, copayments, and/or coinsurance.
Employer Group Underwriting Process
- All eligible members of the group are covered regardless of physical condition, age, or gender
- Group plan may not discriminate in favor of executives or other highly compensated persons
- In essence, the entire group is viewed as an individual and underwriter will take careful measures to protect against adverse selection by appropriately rating each group as a whole.
Experience vs. Community Rating
- Experience rating is determined by examining the history of claims a particular group experiences - insurer uses past experience to predict future cost
- Community rating determines premiums by examining a particular geographic region of all insureds in a group.
*In multi-state groups, cost is determined by the state in which a majority of the employees are located and the policyholder’s principal office location. Insurer’s corporate office location is not a cost factor. Annual re-evaluation makes adjustments possible based on group’s claims experience. Average age, gender, and size of the group will also be a factor in cost.
Plan Design Factors
Insurer can require a minimum percentage of the group to enroll in the plan to guard against adverse selection. Minimum percentage requirements include:
- Contributory plans require that both the employees and employer contribute to the premium, and 75% participation is required
- Noncontributory plans require the employer to pay all premiums, and 100% participation is required.
Persistency
Another important underwriting factor that refers to the renewal quality of a plan and preventing it from lapsing due to nonpayment or being replaced. Insurance companies strive for a high persistency percentage.
Administrative Capability
Group health plans handle many of the administrative issues on behalf of the sponsor, such as updating enrollments and adding new members. Since many of these abilities can be handled online, the cost of administration in a group plan is less than that of an individual plan.
Coinsurance and Deductible Carryover
In the event that a group health plan changes insurers mid-year, employees must be fully credited with all expenses that have accumulated toward the annual deductible and/or out-of-pocket limit. This includes copayments for prescription medications in companion or stand-alone prescription drug plans.
Reinstatement for Military Personnel
If an employer discontinued health coverage during deployment, federal law requires an individual be allowed to resume plan membership without any type of waiting period as long as notice is given to the insurance company directly after deployment.
No-Loss-No Gain for existing claims and pre-existing conditions (Hold-Harmless Agreement)
The No-Loss-No Gain legislation requires that when a group health insurance is being replaced, ongoing claims under the former policy must continue to be paid under the new policy, overriding any preexisting conditions exclusion and establishing mandatory risk transfer.
Events that terminate coverage
Group coverage may be terminated for an employee if employment is termination, the employee not longer meets eligibility requirements (ex. becomes part-time), or if the group contract is terminated.
Extension of Benefits
When a group policy is terminated of replaced, covered individuals who are being treated for a medical condition must continue to have their claims covered. When new group insurance replaces existing coverage within 60 days of the termination of the first policy, either the former insurer will continue paying claim until it is resolved, or the new insurer will take over. Employees and their dependents who are on claim at the time of the cancellation/termination of employment will continue to be covered by the former group plan until the claim has ended.
Conversion Privilege
Allows and employee to convert the group coverage to an individual policy, without proof of insurability, upon termination of eligibility or termination of the group plan, providing the request is submitted to the insurer within 31 days after the qualifying event. Not all insurers offer this privilege, but if they do, individual plan premiums will be higher and the coverage will not be as comprehensive.
