chapter 13

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 are designed to 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. Insurance must be incidental to the group. A group insurance contract is between the group sponsor (employer) and the insurance company. The group sponsor receives a Master Policy, while individual employees receive a Certificate of Insurance and a Summary of Benefits.

Types of Eligible Groups

Group health insurance plans in California must have the following characteristics: Covers not less than 2 public or private employees Issued to the employer with premiums being paid by the employer, employee, or jointly Insures either all employees or all classes of employees as determined by conditions pertaining to employment Written for the benefit of someone other than the employer, such as a trustee representing the employees and dependents When written on a contributory basis, the benefits must be offered to all eligible employees In addition to Individual Employer Groups for employees of an eligible employer, there are other types of eligible groups.

Guaranteed Coverage

HIPAA allows a new employee to enroll immediately without a waiting period if a certificate of creditable coverage is presented. This law also applies to employees leaving the employer to become self-employed. They cannot be denied coverage.

Group Health Plans

HIPAA laws applying to groups of 2 or more: Limit the ability of a new employer plan to exclude coverage for preexisting conditions. Provide additional opportunities to enroll in a group health plan if a member of the group loses other coverage or experiences certain life events. Prohibit discrimination against employees and their dependent family members based on any health factors they may have, including prior medical conditions, previous claims experience, and genetic information. Guarantee the continuation of health benefits to individuals who have 12 months creditable coverage from a group insurance plan immediately preceding a change of employment and who choose to participate in the new employer's group health plan. A certificate of creditable coverage, or proof of coverage, is required.

HIPAA (health insurance portability and accountability act)

HIPAA was designed to provide protections for persons with preexisting conditions who left one employer and might not be covered by a new group health plan. In addition, HIPAA created a number of regulations concerning privacy protections for personal health information, including safeguards for recordkeeping and sharing of medical records. HIPAA also includes a variety of regulations concerning individual medical records, their retention and security, and limits access to and disclosure of an individual's Protected Health Information (PHI) both with and without express consent of the individual.

Conversion Period Coverage

If an employee under a group policy becomes entitled under the terms of the policy to have an individual policy issued without evidence of insurability (as long as an application is submitted with the initial premium) and is not given notice of this right within 15 days prior to the 31-day expiration period, the employee must be given an additional period to exercise this right. The additional period will expire 25 days after the notice, but will not extend beyond 60 days after the 31-day grace period provided in the policy.

Relationship with Medicare

If an individual is age 65 or over and continues to work, Medicare is usually the secondary insurer to any employer group health plan the individual participates in. A Group Health plan with 20 or more employees is primary to Medicare and pays first. If the employer's plan does not pay all of one's expenses, Medicare may pay secondary benefits for Medicare covered services to supplement the amount paid by the group plan. Employers who have 20 or more employees are required to offer the same health benefits, under the same conditions to employees age 65 or over and to employees' spouses who are age 65 or over, as offered to the younger employees and spouses. If an employee is disabled and on Medicare, he/she is to receive the same offer as all other employees.

Take-Over Benefits - Coinsurance and Deductible Carryover

In the event that a group health plan changes insurers in 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.

Basic Provisions

The FMLA provides 12 workweeks of leave in a 12-month period with regard to the following situations: The birth of a child and to care for the newborn child within 1 year of birth. The placement with the employee of a child for adoption or foster care and to care for the newly placed child within 1 year of placement. To care for the employee's spouse, child, or parent who has a serious health condition. A serious health condition that makes the employee unable to perform the essential functions of his or her job. Any qualifying crisis arising out of the employee's spouse, children, or parent being covered as a military member on "covered active duty". 26 workweeks of leave during a single 12-month period to care for a covered service member with a serious injury or illness who is the spouse, son, daughter, parent, or next of kin to the employee (Military Caregiver Leave).

Conversion Privelege

There is a conversion period of 31 days in which the employee may, upon termination of eligibility and without evidence of insurability, convert group benefits to an individual policy. Premiums will be higher because the conversion policy will be issued at the attained (current) age of the insured.

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. Blanket policies do not name specific individuals as insureds, the insured organization/business must certify a covered person's claim as legitimate. The term for a blanket policy cannot exceed one year.

Events that Terminate Coverage

Group coverage may be terminated for an employee if employment is terminated, the employee no longer meets eligibility requirements (becomes part-time) or if the group contract is terminated.

Multiple Employer Trusts (METs)

METs are entities formed by unrelated businesses in the same or related industrial classification and/or third-party administrators who are called sponsors, thus allowing small to medium sized employers with limited numbers of employees to combine their employees into a single, larger group in order to obtain more favorable life and health insurance premiums and increased benefits (METs can also provide access to other employee benefit plans, such as defined contribution or defined benefit retirement plans). The sponsor develops the 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, relieving the Trust and participant employers of most liability for the claims of employees. The Trust gets the Master Policy.

Multi-Employer Welfare Associations

MEWAs are generally formed by larger employers for the purpose of obtaining more favorable rates for life and health insurance. These groups can be created as fully insured, self-funded or partially self-funded benefit programs as an alternative mechanism to traditional health insurance for small employers. In order for the Department of Insurance to grant a MEWA a Certificate of Compliance, the MEWA must adhere to standards set forth in the code that are consistent with the provisions of ERISA. In California, MEWAs that are unable to show that they are subject to the jurisdiction of another agency of this or another state or the federal government, must submit to an examination by the Commissioner to determine their organization and solvency, and to determine whether they are in compliance with applicable provisions of the code, and are required to obtain a Certificate of Authority to do business in California and be required to meet all appropriate reserve, surplus, capital and other necessary requirements imposed by the code for all insurers.

Mental Heal

The Mental Health Parity Act is a federal law that originally prevented group health plans and health insurance issuers that provide mental health or substance use benefits from imposing less favorable benefit limitations on those benefits than on medical/surgical benefits. The Act applies to employer - related group plans with 100 or fewer employees and was amended to also apply to individual health insurance coverage.

No loss-no gain for existing claims Hold harmless Agreement

The No Loss-No Gain provision requires that when group health insurance is being replaced, ongoing claims under the former policy must continue to be paid under either the former policy or the new policy. Coverage under a new policy must not be less beneficial than the former policy, and if covered by the former policy, claims must be paid for the duration of the disability or until the allowable benefit of the former policy has been exhausted.

Replacement of Group Health Insurance Discontinuance

The termination of a policy or of coverage for an entire employer unit under a group disability policy, group nonprofit hospital service contract or self-insured welfare benefit plan. Insurers replacing hospital, medical, or surgical benefits within 60 days of discontinuance must cover all employees and dependents covered by or eligible for coverage under the previous policy as of the date of discontinuance. The level of benefits must be equal to the coverage provided by the discontinued policy. The replacing insurer is not required to provide future benefits for conditions that caused a disability which arose during the term of the previous policy.

Creditor Group

This type of group covers debtors who are obligated to repay an indebtedness in equal installments over a year or more and repay a final balance in any amount on a certain date to a creditor. To qualify, the group must have at least 10 new entrants yearly, the amounts insured cannot exceed the balance of the debt, and the premiums are paid by or through the creditor.

Eligibility for coverage

To be eligible, an employee must meet the employer's eligibility requirement. Employers who offer health insurance to full-time employees cannot exclude any who work at least 30 hours per week. 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

Family and Medical Leave Act (FMLA)

Under the FMLA, an employer always must maintain the employee's existing level of health coverage (including family or dependent coverage) under a group health plan during the period of FMLA leave, provided the employee pays his or her share of the premiums. An employer may not discriminate against an employee using FMLA leave, and must provide the employee with the same benefits normally provided to an employee in the same leave or part-time status.

Dependent Eligibility and Continuation

California law permits insurers to offer coverage to an employee's dependents. 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 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. Subsequent proof may be required by the insurer, but not more frequently than annually after the 2-year period following 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.

Renewability

Existing coverage must be renewed unless one of the following exists: Failure of the plan sponsor to pay premiums timely Failure of the plan sponsor to comply with a material provision, such as maintaining a minimum required percentage of participation The plan sponsor committed an act of fraud or intentional misrepresentation of a material fact regarding the terms of the plan The employer is no longer a member of the association that sponsors a plan There is no covered employee that lives or works in the service area of a network plan The issuer of coverage ceases to offer coverage in a particular marke

Replacement of Group Health Insurance Extension Benefits

Extension of Benefits When a group health insurance policy is terminated or replaced, covered individuals who are totally disabled at the time of replacement must continue to have their claims covered. The extension of benefits may be terminated if the employee or dependent is no longer totally disabled. Coverage provided by the new insurer is called Replacement Coverage.

Pregnancy Discrimination Act

regnancy discrimination involves treating a woman less favorably on the basis of pregnancy, childbirth, or related medical conditions. The PDA prohibits discrimination against pregnant women in all areas of employment, including hiring, firing, seniority rights, job security, and receipt of fringe benefits. The law requires that pregnant employees be treated the same as other employees on the basis of their ability or inability to work. This means the same accommodations must be provided for an expectant worker would be provided for any other employees unable to perform their regular duties. The PDA applies to groups with 15 or more employees.

Employer Self-Funded Plans

Employer Self-Funded Plans are plans created and funded by large employers insuring the risks of the group without the backing of an insurance company. These plans must meet specific funding requirements under ERISA.

Group Provisions Standard Policy Provisions

Incontestability - The validity of the policy cannot be contested, except for nonpayment of premiums, after it has been in force for 2 years. Employees added to the plan after the inception of the policy each have their own 2-year period of contestability with regard to enrollment application misrepresentations and concealments. Misstatement of Age - A group policy must contain a provision allowing for the adjustment of premium in the event of a misstatement of the age of an employee. Exclusions for War, Military, and Aviation Risks - An employer group policy may provide for the exclusion or limitation of coverage for losses arising from conditions relating to war, military service, or aviation exposures.

Experience vs. Community Rating

Insurers may use experience or community rating when determining cost. Experience rating is determined by examining the history of claims a particular group experiences. The insurer uses past experience to predict future cost. Community rating determines premiums by examining a particular geographic region of all plans in force.

Third Party Administrator

Most self-funded plans have a third-party administrator to handle the administrations services, certification and claims process on behalf of the employer.

Labor Unions

The Taft-Hartley Act was a 1947 amendment to the National Labor Relations Act of 1937. 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.

Participation Requirements

The 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.

Group Underwriting Process Open Enrollment Period

A "Large group" for health insurance in California is a single employer with more than 50 full-time employees. These underwriting practices and requirements are only applicable to large groups. The underwriter's greatest concern when underwriting a group plan is adverse selection. To help protect against preexisting conditions and immediate claims, group plans may have a probationary period of not more than 90 days. This is a waiting period between when an individual joins the group before they can enroll in the group plan. As long as the individual enrolls during the eligibility period that begins after the probationary period ends, 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. The cost of the plan is determined by the average age of the group, gender, size, industrial classification (nature of the work involved), experience rating (the group's claims) and the personnel turnover history. These factors are more important than the actual overall health of the group.

Erisa qualified plans

A group health plan is an employee welfare benefit plan established or maintained by an employer, an employee organization (such as a union), or both, that provides medical care for participants or their dependents directly or through insurance company. Most private sector health plans are covered by the Employee Retirement Income Security Act (ERISA). ERISA governs employer-sponsored employee retirement and welfare and benefit plans. Among other things, ERISA provides protections for participants and beneficiaries in employee benefit plans, including providing access to plan information. Also, those individuals who manage plans (and other fiduciaries) must meet certain standards of conduct under the fiduciary responsibilities specified in the law. An employer is required to provide a Summary Plan Description filed with the Department of Labor explaining benefits to the employee on an annual basis. An annual financial report must be filed with the IRS.

Domestic Partners

A policy of group health insurance that provides hospital, medical, or surgical expense benefits shall provide equal coverage to the registered domestic partner of an employee, insured, or policyholder subject to the same terms and conditions, as provided to a spouse of the employee, insured, or policyholder. An insurer may require the insured to verify the domestic partnership status by providing a copy of a valid Declaration of Domestic Partnership filed with the Secretary of State, an equivalent document issued by a local agency of this state, another state, or a local agency of another state under which the partnership was created. The policy may also require that the insured notify the insurer upon the termination of the domestic partnership. However, this will be required only if the policy requires the insured to notify insurer of marital status verification, such as marriage or divorce.

Americans with disabilities act

An employer may not refuse to hire a qualified applicant who has a disability or has a dependent with a disability because of concern about the potential impact on health insurance costs. ADA regulations require that employees be given equal access to the same health benefits that are provided to other employees. If an employer provides health insurance to employees, the employer must provide equal access to employees with disabilities. However, ADA Title V allows insurers and health benefit plans to make health-related distinctions, provided that these practices are not used to evade the ADA.

Small Employer Medical Expense Insurance Definition of Small Employer

As of January, 2016, a "small group" for health insurance in California is a single employer with 100 or fewer "full-time equivalent" employees (persons who work at least 30 hours per week). Two part-time employees each working 15 hours per week is the equivalent of one full-time employee working 30 hours. Small groups may obtain health insurance through California's Small Business Health Options exchange, known as "SHOP" or through any of the private exchanges which exist. Health insurance for all eligible employees is a guaranteed issue and must be issued on a standard basis. Although the business owner may be counted as a member of the group, in most circumstances, the spouse and children (under age 26) of a business owner cannot be counted as employees, but may be covered as dependents. Small employers with 25 or fewer employees who each average less than $50,000 in annual income may be eligible for federal premium tax credits of up to 50% of the employee premium for a health plan purchased through SHOP. Premium tax credits are only available to the business for up to 24 months. Health insurance purchased through a private exchange is not eligible for premium tax credits.

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. The continuation coverage is the same group plan the employee or dependent was enrolled in. 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 twice. The first notification is when a group plan begins or is amended to include the continuation of coverage provision. The second notification is when a qualifying event occurs. Cal-COBRA Employers with fewer than 20 employees are not required to offer continuing coverage under COBRA. California residents have the additional protection of Cal-COBRA, which provides coverage to employees not covered under COBRA. Cal-COBRA also offers a time extension for those whose COBRA eligibility has expired. Under either case, Cal-COBRA permits the insurer to charge up to 150% of the premium. Under Cal-COBRA, health, dental and vision plans are covered. However, if a carrier offers a package of these benefits, it cannot be required to offer only the dental and/or vision components under Cal-COBRA. Most companies are required to extend benefits for up to 36 months when the individual is allowed less than 36 months under COBRA. This extension of benefits under Cal-COBRA includes family/medical leave and maternity benefits as covered under COBRA. Eligibility for Cal-COBRA extends to indemnity policies, PPOs, and HMOs only. Self-insured plans are not eligible. Unlike COBRA, church plans are eligible under Cal-COBRA.

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.