Unit 5: Group Insurance

Multiple Employer Trusts

- Two or more employers in the same or related field - One or more labor union or associations The trustees are the policyholders and the plan must not be for the benefit of the employer, union, or association.

Enrollment Percentage

A majority of eligible individuals should be members of the group of insureds.

Probationary Period

A period that may be required for new employees, which means they must wait a certain period of time (generally 1-6 months) before they can enroll in the plan.

Shared Funding Arrangement

Allows the employer to self-fund health care expenses up to a certain limit. The employer can select a deductible and pay coverage expenses for any individual incurring claims up to that maximum, at which point the insurer assumes risk.

Association or Labor Group

An association or labor group must have the following characteristics to be considered an authorized group: - Have a constitution and bylaws - Be organized and maintained in good faith for purposes other than obtaining insurance - Have insurance for the purpose of covering members and their employees for the benefit of persons other than the association or its officers or trustees.

Multiple Employer Group

Composed of several employers forming a trust to combine their workers for life insurance eligibility.

Predetermined Coverage Amount

Coverage must be uniform for plan participants. Coverage can be based on such things as the number of years with the company occupation, or salary.

Optional Requirements in Group Underwriting

Employer Control - The employer should be in charge of enrollment, premium payment, benefit selection, and all other areas of administration that are not an insurance company function. It is the employer's duty to see that plan administration is conducted in a confidential, legal, and objective manner. Group Size - Most insurers require a minimum number of employees or plan participants before a group health insurance plan may be written.

Premiums

Group insurance policies are often able to provide coverage at a lower premium than individual policies can. The premium may be paid entirely by the policyowner, or it may be paid jointly by the policyowner and the insured. If the insured contributes money toward the premium, the plan is considered contributory. If the premium is paid entirely by the policy owner, the plan is considered noncontributory.

Eligibility Period

If the group is noncontributory, all individuals become covered immediately after the probationary period.

Statutory Requirements in Group Underwriting

Nondiscriminatory Classifications - An eligible group must not discriminate in favor of individuals in a manner that increases the opportunity for adverse selection against the insurance company. Employers will be grouped under such classifications, as eligible full-time employees, clerical workers, hourly employees, salaried employees, executive, and so forth.

Minimum Premium

Plans occur when the employer agrees to fund expected claims and the insurer funds excess claims. The employer and insurer agree to a trigger beyond which the insurer is liable. The employer is responsible for a minimum premium consisting of administrative expenses, reserves, and a premium for stop-loss to fund claims over the trigger.

Funding of Group Insurance

Shared Funding Arrangement Retrospective Premium Minimum Premium

Group Insurance

States generally define true "group" insurance as having at least 10 people covered under one master contract. The PLAN SPONSOR (employer, union, association, and so forth) is the policyholder responsible for administering the plan and making premium payments to the insurance company. The insured group members receive a certificate of insurance that certifies the coverage, the benefits under the policy, the name of the covered individual(s), and the name of the beneficiary, if applicable.

Group Contract and Certificate of Covereage

The basic principle of group insurance is that it provides insurance coverage for a number of people under a single master contract or master policy. The employer (or group) is the applicant and contract policyholder; the employees, as group members, are not parties to the contract. The employee does not receive a policy and instead receives a certificate of insurance which summarizes the coverage terms and explains the employee's rights under the group contract.

Employee or Individual Employer Group

The employer is the policyowner and establishes the eligible class of employees to be covered under the group policy.

Retrospective Premium

The insurer agrees to collect a provisional premium but may collect additional premium or make a premium refund at the end of the year based on the actual losses.

Adverse Selection

The tendency for poor risk to seek and be covered for insurance more often than average risk. In a group situation, the underwriter must consider such things as the type of work done, the ages of the participants, and the probability of this particular group being an adverse risk to the company. A risk will be rejected when the insurer believes the policy cannot be profitable at a reasonable premium or with reasonable coverage modifications.

Insurance Incidental to Group

The underwriter should determine that the group has not been formed only for the purpose of purchasing insurance.

Composition of Group

The underwriter should determine that there is a reasonably steady flow of new members into the group. If a group were to keep the same individuals in the group, the chance of accident, illness, or death would increase as the group became older, and rates also would increase. A new insurer may decide to decline the entire group because of a large number of current claims. A new insurer may establish a preexisting condition provision in the group contract that excludes coverage for any condition that exists before the effective date of coverage.

Eligibility

Today, virtually all occupations can get insurance coverage. However, the higher the risk, the higher the premium.

Credit Insurance

Written to provide payment of the insured's debt when he dies prematurely or is disabled as a result of accident or sickness. The creditor is the policyowner and the debtor is the insured.