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SolveYourProblem
eLearning Series:
Health Insurance: Your Questions Answered
What does everything mean & how
to choose the right policy
( 18 pages )
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 non-contributory 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.
 
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