Chapter 13 Group Health Insurance

Characteristics of Group Insurance

Group health insurance is similar in nature to group life insurance. -Employers are the most common sponsors of group insurance. ---The employer may contract with an insurance company, HMO, or PPO to provide for payment of direct health care expenses, or may hire a Third Party Administrator to manage claims and other aspects of a self-funded plan. These plans usually cover only nonoccupational (not work-related) injury or disease. In order for a group to be eligible, it must be considered a natural group, which is a group that is formed for a purpose other than to obtain insurance. A group insurance contract is between the group sponsor and the insurance company. The group sponsor receives a Master Policy, while individual employees receive a Certificate of Insurance and a Summary of Benefits. ---All employees have the same coverage. The group sponsor applies for coverage, provides information for underwriting, maintains the policy, and makes premium payments.

Medical and Dental (Group)

Group medical and dental expense premiums paid by the employer are tax deductible Self-employed persons may deduct up to 100% of the cost of health insurance for themselves and their dependents An employee's share of premiums paid for group health insurance are deductible only to the extent that all premiums, as well as unreimbursed medical expenses, exceed 7.5% of their AGI (Adjusted Gross Income) Benefits received under any medical expense and dental plan, regardless of the premium payer, are not taxable

How to become eligible for group insurance?

In order for a group to be eligible, it must be considered a natural group, which is a group that is formed for a purpose other than to obtain insurance.

Birthday Rule

In the event children are covered by more than one group plan, the "birthday rule" applies. ---Under the birthday rule, the plan covering the parent whose birthday occurs first in the calendar year will be the children's primary coverage.

Differences Between Individual and Group Insurance Contracts

Individual Health Insurance -Insured receives a policy -Evidence of insurability required; a detailed underwriting process is based on the individual applicant -Probationary period is set by the insurer and immediately applies after the policy is issued to limit coverage due to pre-existing conditions -Individual can purchase the policy at any time -Premiums payable solely by the individual -Policy typically has lower limits and higher deductibles -Does not usually offer the same coverages and benefits as group Group Health Insurance -Insured/employee receives a certificate of insurance -Underwriting is based on the characteristics of the group, not the individual -Probationary period is set by the employer sponsor and starts when the employee is hired to determine enrollment eligibility -Employee must wait for the probationary period to end and enroll during the enrollment period without insurability -Premiums paid either entirely by the employer or by both employer and employee -Policy typically has higher limits and lower out-of-pocket expenses -Benefits are usually more comprehensive, dependent coverage usually offered, and employee has conversion rights

Will the premiums be higher with a group or individual plan?

Individual Plan will be higher and coverage will not be as comprehensive as the group plan

What do individual employees receive in group insurance?

Individual employees receive a Certificate of Insurance and a Summary of Benefits.

Experience vs. Community Rating

Insurers may use experience or community rating when determining cost.

How do insurers determine cost for group insurance?

Insurers may use experience or community rating when determining cost.

Is it required to offer a conversion prvilege?

It is not required to offer a conversion privilege, but most employers will offer this as long as the underlying insurance company has an individual plan.

What does the group sponsor receive?

Master Policy

How is most health insurance issued today?

Most health insurance today is issued on a group basis.

Employer Group Underwriting Process

Most health insurance today is issued on a group basis. Group underwriting is different than individual underwriting; ---all eligible members of the group are covered regardless of physical condition, age, or gender. ---In essence, the group as a whole is viewed as an individual. -Experience vs. Community Rating -Premium Contributions

Are benefits received from Accidental Death and Dismemberment (Group) taxable?

No

Are benefits received from a qualified LTC policy (Group) taxable?

No

Does the COBRA continuation coverage require evidence of insurability?

No

Are benefits received under any medical expense and dental plan, regardless of the premium payer, are taxable?

No they are not taxable

Does Group Insurance cover work-related injuries or diseases?

No. These plans usually cover only nonoccupational (not work-related) injury or disease.

Accidental Death and Dismemberment

Premiums paid by the employer are tax deductible Benefits received are not taxable

Long-Term Care Insurance (Group)

Premiums paid by the employer are tax deductible Benefits received from a qualified LTC policy are not taxable

The plan that covers a person as an employee is that person's

Primary Coverage

How many days does the employee have to provide proof of the disabled dependent?

Proof of the child's incapacity and dependency must be furnished to the insurer within 31 days of the child's attainment of the limiting age.

The plan that covers a person as a dependent under their spouse's group plan is

Secondary Coverage

When do secondary carriers pay claims?

Secondary carriers will only pay claims that are not covered or are 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.

If someone is self-employed, how much can they deduct from their health insurance?

Self-employed persons may deduct up to 100% of the cost of health insurance for themselves and their dependents

Who maintains control over the plan in group insurance?

The Employer

Whom determines the benefits, oversees the enrollment process, and makes premium payments?

The Employer

How many days does the employee or beneficiary have to elect to continue the coverage under COBRA?

The employee or the beneficiary must notify the employer within 60 days if they elect to continue coverage.

Notification of an individual's right to continue coverage under COBRA is required at two times.

The first time is when a group plan commences or is amended to include the continuation of coverage provision. The second time that an insured must be notified under COBRA is when a qualifying event occurs.

What does the group sponsor do? (responsibilities)

The group sponsor: -applies for coverage -provides information for underwriting -maintains the policy -makes premium payments.

Premium Contributions

The insurer can require a minimum percentage of the group to enroll in the plan to guard against only the unhealthy or high risk employees enrolling, known as adverse selection. ---Minimum percentage requirements are based on who pays the premium. -Contributory plans -Noncontributory plans

How are Employer-Sponsored Worksite Plans issued?

The plans are issued as individual coverage and are portable (employees can keep them following termination of employment by paying premiums directly to the insurer).

How do underwriters protect from adverse selection?

To help protect against pre-existing conditions and immediate claims, group plans may have a probationary period set by the group sponsor.

An employee's share of premiums paid for group health insurance are deductible only to the extent that all premiums, as well as unreimbursed medical expenses, exceed ________ of their AGI

7.5%

Which is not a qualifying event for the continuation of dependent coverage under the Consolidated Omnibus Budget Reconciliation Act? A. Termination of the employee for theft B. The employee's eligibility for Medicare benefits C. Death of the employee D. Divorce or legal separation

A. Termination of the employee for theft This would be termination for gross misconduct and neither the employee nor his/her dependents would be eligible for continuation under COBRA.

In noncontributory group health plans, how many eligible employees must be covered by the plan? A. 75% B. At least 90% C. 100% D. At least 50%

C. 100% Noncontributory plans (in which the employer pays the full cost) must cover 100% of eligible employees.

How much time after a qualifying event has occurred and notice is given of their right to continue insurance does an employee or dependent have to elect continuation of the group health plan under COBRA? A. 18 months B. 90 days C. 60 days D. 36 months

C. 60 days An election to continue the group health plan under the provisions of COBRA must usually be made within 60 days of the qualifying event. Only in the event that proper notice was not given may the election period be extended.

All of the following statements regarding a group Accidental Death and Dismemberment policy are incorrect, except: A. Accidental Death and Dismemberment Insurance is not available on a group basis, only on an individual basis B. The premiums paid by the employer are not deductible as a business expense to the employer C. Any benefits received are not taxable to the recipient D. The premiums paid by the employer are considered part of the employee's income

C. Any benefits received are not taxable to the recipient The benefits received are not taxable to the recipient. All of the other answers are false.

If a child is covered under more than one group health insurance plan how is it determined which carrier is primary? A. The date of birth of the child that is closest to either parent becomes primary B. The younger parent's plan will become primary C. The plan covering the parent whose birthday occurs first in the calendar year will be the children's primary coverage D. The parent whose date of birth is closest to the end of the year determines which is primary

C. The plan covering the parent whose birthday occurs first in the calendar year will be the children's primary coverage In the event children are covered by more than one group plan, the 'birthday rule' which says the plan covering the parent whose birthday occurs first in the calendar year will be the children's primary coverage.

Are premiums paid by the employer under Accidental Death and Dismemberment (Group) tax deductible?

Yes

Are premiums under long-term care insurance (Group) tax deductible?

Yes

Will the recipients of COBRA continuation be required to pay premiums? Up to how much?

Yes Recipients of COBRA continuation will be required to pay premiums to the employer. ---Employers may require a former employee or their surviving spouse to pay up to 102% of the premium.

Can an employee make changes to the group plan outside of an enrollment period?

Yes, only if they have a change in status, such as going from part-time to full-time, getting married, or adding/dropping dependents.

Are group medical and dental expense premiums paid by the employer tax deductible?

Yes, they are tax deductible

Which statement would be considered inaccurate regarding the underwriting of a group plan? A. The insurer can require a minimum percentage of the group to be enrolled to guard against adverse selection B. The corporate home office of the group normally is the group's address C. The cost of a group policy is determined by the type, size, and average age of the group and claims experience with previous insurers D. Contributory plans require 100% employee participation

D. Contributory plans require 100% employee participation Contributory plans require both the employee and the employer to contribute to the premium, and 75% participation is required.

Noncontributory plans (Group)

premiums are paid entirely by the employer and require 100% participation of the eligible employees.

Under Employer-Sponsored Worksite Plans how are premiums deducted?

premiums are withheld as payroll deductions by the employer.

Contributory plans (Group)

require both the employee and employer to pay a portion of the premium. ---require a minimum of 75% participation of the eligible employees.

What does COBRA state?

states employers with 20 or more employees must provide a health coverage continuation option to all covered employees and dependents up to 18 months in the event of: -Termination -Reduction -Disability (may continue up to 29 months)

How many days must the employees be notified of their right to continue coverage under COBRA?

within 14 days of a qualifying event

Under COBRA coverage may continue for dependents up to 36 months for certain qualifying events:

-Death of employee -Divorce or legal separation -Employee's entitlement to Medicare benefits -A child ages out of the group plan as a dependent at age 26

Some examples of Worksite Insurance Plans products are:

-Dental Insurance -Vision Insurance -Accident-Disability Insurance -Short-Term Disability Insurance -Long-Term Disability Insurance -Critical Illness Insurance

Group Health Insurance Eligibility and Benefits

-Eligibility for Coverage -Open Enrollment Period -Dependent Eligibility -Nonduplication and Coordination of Benefits -Conversion Privilege -Taxation of Group Health Insurance Premiums and Proceeds

Worksite Plans have flexible payment funding options:

-Employer only (uncommon) -Employee only (most common) -Cost shared program designed by the employer (when the employer contributes funds for an FSA plan) -Section 125 Cafeteria Plan option allows premiums to be paid with pretax income

Taxation of Group Health Insurance Premiums and Proceeds

-Medical and Dental -Long-Term Care Insurance -Accidental Death and Dismemberment

Because the continuation coverage is the same group plan the employee or dependent was enrolled in, it:

-Requires no evidence of insurability and provides the same benefits as the group policy -Covers preexisting conditions if covered under the group policy

Events that will cause termination of continuing health coverage by COBRA are:

-Timely premium payments are not made -Employer ceases to maintain any group health plan -Employee becomes eligible for Medicare benefits; dependents may remain under COBRA -Employee becomes eligible for any other group health plan -Employee converts to an individual health plan

Eligibility for Coverage (Group Insurance)

-an employee must meet the employer's eligibility requirements to be considered full time (such as working a minimum of 30 hours/week) -must be actively at work before they can enroll in the group plan. The employer maintains control over the plan, determines benefits, oversees the enrollment process, and makes premium payments. ---The employer cannot discriminate when determining eligibility and employee benefits.

How many days does an individual have after the probationary period (waiting period) is over to enroll?

30 days to enroll

How many days must the request to convert and payment of premium be submitted?

31-day grace period after termination

Who is a group insurance contract between?

A group insurance contract is between the group sponsor and the insurance company.

What percentage of employee participation is required for a contributory employer group plan? A. 75% B. 25% C. 50% D. 100%

A. 75% Contributory plans require 75% participation.

Which provision of group health plans is used to determine primary and secondary coverage when an insured is covered by more than one insurance plan? A. Coordination of Benefits B. Extension of Benefits C. Schedule of Benefits D. Primary Care Coverage

A. Coordination of Benefits The Coordination of Benefits provision describes how primary and secondary coverage will be determined when an insured is covered by more than one group policy.

Group Accidental Death and Dismemberment premiums are _______ by the company paying the premiums as a business expense. A. Deductible B. Taxable C. Tax-Deferred D. Tax-Free

A. Deductible Group Accidental Death and Dismemberment premiums are tax deductible by the business owner. Benefits are paid income tax-free because they are not considered income.

All of the following are accurate statements, except: A. Group insurance normally covers occupational injury or disease B. In group insurance, the employer receives a Master Policy and each employee receives a Certificate of Insurance C. In group insurance, the contract is between the employer and the insurer D. The group must be a natural group

A. Group insurance normally covers occupational injury or disease Group insurance normally covers nonoccupational injury or disease. Workers' Compensation Insurance is designed for occupational injury and disease.

All of the following groups are eligible for group rates, except: A. Groups formed to reduce premiums B. Associations C. Employers D. Labor unions

A. Groups formed to reduce premiums A group cannot be formed for the express purpose of obtaining insurance. Employers, labor unions, and associations are eligible plan sponsors.

When an employee is terminated, COBRA provides for the continuation of: A. Health insurance at the employee's expense for up to 18 months B. Health insurance for the employee only for a minimum of 36 months C. Life and health insurance if an employee quits, is fired, or laid-off D. Life and health insurance at the employer's expense for up to 29 months

A. Health insurance at the employee's expense for up to 18 months In the event an employee is terminated for any reason other than gross misconduct, COBRA provides for continuation of the group health plan for the employee and his/her dependents for up to 18 months (29 months if a person is disabled at the time of a qualifying event). The employee can be required to pay up to 102% of the cost of the insurance. Life insurance is not covered under COBRA.

Group health plans usually cover: A. Nonoccupational injury or disease B. Neither occupational nor nonoccupational injury disease C. Occupational injury or disease D. Both occupational and nonoccupational injury or disease

A. Nonoccupational injury or disease Group health plans usually only cover nonoccupational injury and disease. Workers' Compensation Insurance is designed to cover job-related injury or disease.

Events that will cause termination of continuing health coverage under COBRA include all of the following, except: A. The employee fails to convert to an individual health insurance plan on the day it is offered B. Timely premium payments are not made C. The employee becomes eligible for Medicare benefits D. The employer ceases to maintain any group health insurance plan

A. The employee fails to convert to an individual health insurance plan on the day it is offered Events that will cause termination of continuing health coverage by COBRA include failure to pay premiums on time, cessation of group health coverage by the employer, and employee eligibility for Medicare benefits. Conversion is a separate benefit.

When comparing individual and group health insurance plans, which of the following is a characteristic of group health insurance? A. The group plan usually offers a conversion privilege B. The employee is required to provide evidence of insurability C. Premiums are paid solely by the employee D. An insurance policy is issued to each employee

A. The group plan usually offers a conversion privilege A group plan does not require the employee to prove insurability, the premiums are paid either by the employer or shared between the employer and employee, and a certificate of insurance is issued to the employee. Most group plans offer a conversion privilege.

What occurs if the individual enrolls during open enrollment?

As long as the individual enrolls during the open enrollment, coverage is guaranteed and evidence of insurability is not required.

An employer group health insurance sponsor does all of the following, except: A. Pays the premium B. Issue the policy C. Apply for coverage D. Provide underwriting information

B. Issue the policy The group sponsor applies for coverage, provides information for underwriting, maintains the policy, and makes premium payments. Only insurers issue policies.

When the employer pays some or all of the cost of health insurance for its employees, the benefits paid to each employee are ___________. A. Deductible to the employer B. Not taxable to the employee C. Taxable to the insurance company D. Taxable to the employer

B. Not taxable to the employee Benefits are always non-taxable to the employee, regardless of who pays the premiums.

What does "portable" mean under Employer-Sponsored Worksite Plans?

Employees can keep them (benefits from coverage) following termination of employment by paying premiums directly to the insurer

The employees of a corporation must each pay a portion of the premium for their group insurance. This means they are members of a _____________. A. Nonparticipating plan B. Participating plan C. Noncontributory group plan D. Contributory group plan

D. Contributory group plan In contributory plans (those in which employees pay a portion of the premium), employers are generally required to maintain a minimum of 75% participation among eligible employees.

All of the following are correct regarding employer group health insurance eligibility requirements and benefits, EXCEPT: A. Employees must be considered full-time and actively at work B. Employees must sign up during the enrollment period to avoid providing proof of insurability C. Newly hired employees must usually satisfy a probationary period before they can enroll in the plan D. Employees can enroll at any time without restrictions

D. Employees can enroll at any time without restrictions Employees can only enroll during the open enrollment period and must follow any and all eligibility requirements in order to obtain coverage without having to prove insurability. Otherwise they may have to prove insurability if they attempt to enroll later.

When an insurer relies on the prior claims history of the group to be insured in determining the rate to be charged, it is called: A. Cost rating B. Community rating C. Claims rating D. Experience rating

D. Experience rating If an insurer bases premiums on the group's prior claims history, the coverage is said to be Experience Rated.

Regarding COBRA, which of the following is not true? A. It provides continuation of coverage for 36 months for a surviving spouse B. It provides continuation of coverage for 29 months for workers on Social Security Disability C. It provides continuation of coverage for 36 months for an individual losing dependent status D. It covers participants who have resigned for 36 months following the date of their resignation

D. It covers participants who have resigned for 36 months following the date of their resignation Termination of employment other than for gross misconduct allows former employees and their dependents a maximum of 18 months of continuation.

A(n) _________ is issued to the sponsor of the group, and employees receive an outline of coverage or other summary of benefits, which offers information about the plan's major benefits and principal exclusions. A. Certificate of authority B. Individual policy C. Certificate of insurance D. Master policy

D. Master policy A master policy is issued to the group sponsor while a certificate of insurance or policy summary is issued to the employees.

Which statement is incorrect regarding COBRA? A. Evidence of insurability is not required to continue coverage under COBRA B. Coverage continues for 29 months for individuals receiving Social Security disability C. The employer may require the former employee or beneficiary to pay an amount equal to 102% of the premium D. The employee or beneficiary must respond to the notification of his/her right to continue coverage within 90 days, if he/she wants to continue the coverage

D. The employee or beneficiary must respond to the notification of his/her right to continue coverage within 90 days, if he/she wants to continue the coverage The employee or beneficiary must notify the employer within 60 days if he/she wants to continue the coverage.

Dependent Eligibility

Eligible dependents include the employee's spouse and all children from birth until age 26 -Disabled children who are not capable of self-support may continue to be covered beyond age 26 as long as their disability is due to mental or physical handicap and they are chiefly dependent upon the employee for support and continuous maintenance. ---Proof of the child's incapacity and dependency must be furnished to the insurer within 31 days of the child's attainment of the limiting age. The decision of whether to offer this dependent coverage rests with the employer, must be offered to 100% of participating employees, and this optional coverage may be paid for by the employer, the employee, or both.

Open Enrollment Period (Group Insurance)

The underwriter's greatest concern when underwriting a group plan is adverse selection. -To help protect against pre-existing conditions and immediate claims, group plans may have a probationary period set by the group sponsor. ---This is a waiting period between when an individual joins the group before they can enroll in the group plan. Once the waiting period is over, the employee typically has 30 days to enroll. ---As long as the individual enrolls during the open enrollment, coverage is guaranteed and evidence of insurability is not required. Individuals who do not enroll during the initial enrollment period are considered late enrollees and must provide evidence of insurability unless they wait until the next open enrollment period. An annual enrollment period will be offered each year to allow employees the chance to enroll in the plan at a later date. An employee can make changes to the group plan outside of an enrollment period only if they have a change in status, such as going from part-time to full-time, getting married, or adding/dropping dependents.

What do Employer-Sponsored Worksite Plans allow employees to do?

These plans allow employees to pick and choose among various types of insurance coverages to supplement other employer-sponsored benefits.

Continuation of Coverage Under COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985)

This Act states employers with 20 or more employees must provide a health coverage continuation option to all covered employees and dependents up to 18 months in the event of: -Termination of employee (unless it is for cause as defined by federal law) -Reduction of hours for employee, so they no longer qualify as a full-time employee -Coverage may continue up to 29 months if an employee (or dependent) is totally disabled at the time of a qualifying event Coverage may continue for dependents up to 36 months for certain qualifying events: -Death of employee -Divorce or legal separation -Employee's entitlement to Medicare benefits -A child ages out of the group plan as a dependent at age 26 Employees must be notified of their right to continue coverage within 14 days of a qualifying event. ---The employee or the beneficiary must notify the employer within 60 days if they elect to continue coverage. Recipients of COBRA continuation will be required to pay premiums to the employer. ---Employers may require a former employee or their surviving spouse to pay up to 102% of the premium. Because the continuation coverage is the same group plan the employee or dependent was enrolled in, it: -Requires no evidence of insurability and provides the same benefits as the group policy -Covers preexisting conditions if covered under the group policy ---If the insured carried dependent coverage on the group, dependent coverage must be made available on the continuation policy. Events that will cause termination of continuing health coverage by COBRA are: -Timely premium payments are not made -Employer ceases to maintain any group health plan -Employee becomes eligible for Medicare benefits; dependents may remain under COBRA -Employee becomes eligible for any other group health plan -Employee converts to an individual health plan Notification of an individual's right to continue coverage under COBRA is required at two times. ---The first time is when a group plan commences or is amended to include the continuation of coverage provision. ---The second time that an insured must be notified under COBRA is when a qualifying event occurs.

Upon the completion of this chapter, you will be able to: -Identify the characteristics of group insurance -Explain the open enrollment period in employer-related group plans -Identify the role that COBRA plays in the health care arena

This chapter will focus on group health insurance provisions, the group underwriting process, eligible groups and group insurance plan design. The federal mandates of COBRA will also be explored in this chapter.

Nonduplication and Coordination of Benefits

This is a method of determining primary and secondary coverage when an insured is covered by more than one group policy, and to help prevent Nonduplication (overinsurance)—having more than 100% of a claim paid. ---The plan that covers a person as an employee is that person's primary coverage, and coverage as a dependent under their spouse's group plan is secondary. In the event children are covered by more than one group plan, the "birthday rule" applies. ---Under the birthday rule, 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 are 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.

What is the probationary period in group insurance plans?

This is a waiting period between when an individual joins the group before they can enroll in the group plan.

Conversion Privilege

allows an employee to convert the group coverage to an individual policy, without proof of insurability, upon termination of eligibility or termination of the group plan. ---The request to convert and payment of premium must be submitted to the insurer within the 31-day grace period after termination. It is not required to offer a conversion privilege, but most employers will offer this as long as the underlying insurance company has an individual plan. ---The premiums on the individual plan will be higher and the coverage will not be as comprehensive as the group plan.

What happens when individuals do not enroll during the initial enrollment period? Any exceptions?

are considered late enrollees and must provide evidence of insurability unless they wait until the next open enrollment period. Exception: An annual enrollment period will be offered each year to allow employees the chance to enroll in the plan at a later date.

Employer-Sponsored Worksite Plans

are voluntary benefit plans offered by insurance companies and premiums are withheld as payroll deductions by the employer. These plans allow employees to pick and choose among various types of insurance coverages to supplement other employer-sponsored benefits. The plans are issued as individual coverage and are portable (employees can keep them following termination of employment by paying premiums directly to the insurer). -Dental Insurance -Vision Insurance -Accident-Disability Insurance -Short-Term Disability Insurance -Long-Term Disability Insurance -Critical Illness Insurance Worksite Plans have flexible payment funding options: -Employer only (uncommon) -Employee only (most common) -Cost shared program designed by the employer (when the employer contributes funds for an FSA plan) -Section 125 Cafeteria Plan option allows premiums to be paid with pretax income Worksite Insurance Plans can be used to compliment, supplement and/or enhance other benefit plans offered by the employer. Although a worksite plan may be offered under a Master Contract issued to the employer, the employer generally only acts as a conduit for premium payments via payroll deduction.

Community Rating

determines premiums by examining the claims history of a particular geographic region of all insureds in a group.

Natural Group

is a group that is formed for a purpose other than to obtain insurance.

Experience Rating

is determined by examining the history of claims a particular group experiences.