Group Health Insurance

Clerical Error

A clerical error provision provides that if there is an error or omission in the administration of a group policy, the person's insurance is considered to be what it would be if there had been no error or omission. This recordkeeping and clerical error provision protects the new employee in this type of situation. Usually, the insurer would accept an enrollment form and all of the past due premium and proceed to pay the medical claim.

Federal and State Regulations Affecting Group Policies

A number of federal regulations enacted over the past 20 years affect group life and health insurance policies. These are known by the acronyms COBRA, OBRA, TEFRA, and ERISA. Also, the health reform package, HIPAA, passed in 1996, has major implications for group health insurance policies.

Group Coverage Provisions

As was mentioned, not all members of a group are necessarily eligible for coverage under a group plan. An employer may establish certain eligibility requirements, such as limiting coverage to people who have been employed for a specified period. Often, an employee becomes eligible for coverage after working with a company for a given period, commonly 90 days. The employee is then eligible to apply for coverage during another period, usually 31 days, within which no medical examination will be required. This is the eligibility period discussed previously. Any such qualifications or limitations must be indicated in the policy.

Some group policies might cover only surgical expenses.

Suppose Paul is hospitalized to have his appendix removed. His group policy specifies that the surgeon who performs an appendectomy will receive $450. The hospital charges are not paid. Although this would be fairly unusual today, such policies do exist, and in this situation, Paul's group policy covers only reimbursement for surgical expenses.

Employee Retirement and Income Security Act (ERISA)

intended to accomplish pension equality, but it also protects group insurance plan participants. ERISA includes stringent reporting and disclosure requirements for establishing and maintaining group health insurance and other qualified plans. Summary plan descriptions must be filed with the Department of Labor, and an annual financial report must be filed with the IRS. For other qualified plans, legal documentation of the trust agreement, plan instrument, plan description, plan amendments, claim and benefit denials, enrollment forms, certificates of participation, annual statements, plan funding, and administrative records must all be maintained.

Among other things, the (ADA) law forbids exclusion or limitation of benefits for:

specific disabilities such as deafness or AIDS; individually distinct groups of afflictions, such as cancer, muscular dystrophy, or kidney disease; and disability in general.

Duration of Coverage

An employer is not required to make continuation coverage available indefinitely. The rationale behind COBRA is to provide transitional health care coverage until the employee or family member can obtain coverage or employment elsewhere. The maximum period of coverage continuation for termination of employment or a reduction in hours of employment is 18 months. For all other qualifying events, the maximum period of coverage continuation is 36 months. It should be remembered that COBRA deals with continuation of the exact same group coverage that the employee had as a covered employee. This distinction is important so as not to confuse this provision with the conversion of group coverage to a lesser amount of insurance as part of an individual plan. Not only is the type of coverage the same the insured had while employed, the premium is also the same, except now the terminated employee pays the entire premium to the employer for the privilege of continuing the group benefits. To cover any administrative expense that the employer may incur, the terminated individual may also pay an additional amount each month not to exceed 2% of the premium. Only the health benefits can be continued under COBRA. Any group life insurance under the plan may not be continued. It can, of course, be converted. Recent amendments to COBRA require the continuation of coverage if a preexisting condition limitation is included in the new group health coverage. However, the new group health coverage is primary, and the continuation coverage is secondary.

Coordination of Benefits Provision example

Basil and Kendra, a married couple, work at different companies. Both are covered by group plans that extend to dependents, so they have double coverage. Let's assume that Basil has $2,200 in medical bills resulting from an illness. Basil's policy is primary. Basil has major medical coverage and a $200 deductible, so the primary insurer (Basil's insurance company) first deducts that amount from the $2,200 bill, leaving $2,000. The primary insurer then pays 80% of $2,000, which is $1,600, leaving $600 unpaid—the $200 deductible plus $400, which is Basil's share of the other $2,000. Kendra's company also covers Basil. For Basil's claim (because he is covered as a dependent of Kendra's), her company is called the secondary or excess insurer. The secondary company will pay whatever the primary company will not pay, up to its own limits.Therefore, assuming the remaining $600 is within the limits, Kendra's company pays the full additional $600, which is Basil's percentage participation (20% of $2,000, or $400) plus his deductible ($200). Because double coverage existed, Basil's expenses were fully covered. However, he did not receive more than his actual expenses.

Outpatient example

Eloise's employer provides a group insurance plan covering expenses incurred for hospital care of any type. Eloise is involved in an auto accident on her way home from work, and she is rushed to the hospital for emergency treatment. She is not admitted to the hospital but does receive emergency room treatment. In this particular case, Eloise is an outpatient. If Eloise's group insurance covers only situations such as the one described and does not provide disability income or any other benefits, the coverage is strictly a hospital expense policy. If Eloise's group coverage provides a separate benefit in the event Eloise loses her sight in an accident, this type of benefit is called accidental dismemberment

Clerical Error example

For example, an employer has the responsibility to send group enrollment forms for newly hired employees to the insurer. Sean is a new employee, and through an administrative error, his enrollment form is never forwarded to the insurance company. A few months later, he submits a medical expense claim to the insurer and is told that they have no record of his coverage.

Policy types

Group plans need not include all coverages, but most will include at least two or more. In addition, disability income coverage may be offered under a group arrangement, but it is usually offered separately from hospital, medical, and surgical coverage. The first possible group coverage, then, pays benefits for lost earnings resulting from accident or sickness disability, and it is commonly called disability income insurance. Another common type of group coverage deals with accidental loss of life and accidental loss of one or more limbs or of eyesight. You'll recall that accidental loss of life is referred to as accidental death, and accidental loss of one or more limbs or of eyesight is known as dismemberment. Still another type of group coverage is hospital expense. These policies can pay for hospital expenses whether treatment is on an inpatient or resident basis, whereby the insured is admitted to the hospital, or on an outpatient basis, whereby the insured is not admitted for an overnight stay but is treated and released the same day. The fees of an attending physician during hospital treatment may also be covered. Group health policies frequently provide coverage for medical expenses involving physician or nursing services, but no surgical expense. If Mihail becomes ill and must see his physician regularly as well as remain under the care of a private nurse for several weeks, any health care reimbursement for these expenses is considered medical expense coverage.

subrogation

If it is discovered that an insured is covered by another policy that is responsible for a loss, an insurer may try to recover part or all of their losses from another policy. This is known as subrogation.

Experience Rating Versus Community Rating

In general, premiums for group insurance are based on experience rating. This is a method of establishing the premium for a group based on the group's previous claims experience. The larger and more homogenous the group, the closer it comes to reflecting standard mortality and morbidity rates. In contrast, the practice of community rating sets premiums by using the same rate structure for all subscribers to a medical expense plan, regardless of their past or potential loss experience, and regardless of whether coverage is written on an individual or a group basis.

Plan Termination

In most states, if an employer discontinues its group insurance plan, employees must have the opportunity to convert to individual insurance without a medical exam or other evidence of insurability. Suppose Giovanni has been employed by the same company for 15 years. He is now 53 years of age and has battled a number of skin cancers during the last four years. Giovanni's employer terminates its group health plan but offers employees the opportunity to convert to individual coverage. To get this coverage, it is likely that Giovanni will not be required to have a physical examination or otherwise show that he is insurable. Giovanni is fortunate; he otherwise might not be able to get health insurance at standard rates.

Pregnancy Discrimination

In the past, pregnancy was treated differently from other medical conditions under both individual and group health policies. However, an amendment to the Civil Rights Act requires that women affected by pregnancy, childbirth, or related medical conditions be treated the same for employmentrelated purposes as other persons who are not affected in the same way but are in similar positions. This includes receiving benefits under an employee benefit plan, such as group health insurance. Although the federal law applies only to employers who have 15 or more employees, various state laws may affect employers with fewer than 15 employees.

Dependent Coverage

Life or health insurance benefits may be extended to the primary insured's dependents. The insured's children can be stepchildren, foster children, or adopted children. Dependent children must be younger than a specified age (usually age 19, or up to 25 if attending school full time). The law further requires that any other person dependent on the insured is eligible for coverage. Such dependency is proved by the relationship to the insured, residency in the home, or being listed on the insured's income tax return as a dependent. A child may be a dependent beyond the ages of 19 or 25 if that child is permanently mentally or physically disabled before the specified age. Also, a dependent child may be offered coverage beyond the limiting age of 19 if that child is a full-time college student in an accredited college. Usually, dependent coverage for a student will be extended until age 21 up to age 25.

State Regulation

Many states have some form of mandated group health benefits. These commonly include required coverage for adopted or newborn children, continued coverage for handicapped dependents, coverage for treatment of alcoholism or drug abuse, and coverage for mammograms and pap smears. Some state statutes mandate continuation of coverage for individuals whose group insurance has terminated. Most often, COBRA satisfies the state continuation of coverage requirements. In instances where the state requirements are more generous than COBRA, the employer must follow the more generous plan.

Coordination of Benefits Provision

Many working couples are doubly covered by group health insurance. Both husband and wife often have employer-provided group coverage, and each is covered as a dependent by the other's plan. This type of double coverage can result in individuals being overinsured, creating the temptation to realize a profit from being ill. To avoid this situation, a special provision is required by law in most states. The coordination of benefits provision is designed to give insureds as much coverage as possible while eliminating overinsurance. In double coverage situations, the insurer covering the employee who has the claim is called the primary insurance company. The primary company must pay as much of the claim as the policy limits permit. To restate the coordination of benefits rule: the primary company pays the claim as if there were no double coverage, and the secondary company pays whatever the primary company will not pay, within its policy limits. When a working couple is doubly covered by group insurance, any children they support will also be doubly covered. The birth months and days of the parents are often used to decide which plan is primary. The plan of the parent whose birthday comes first during the year is primary. The other parent's plan is secondary. That is, if Sue's birthday is March 4 and her spouse's is March 8, Sue's plan is primary. If parents are separated or divorced, the plan of the parent with custody is primary, barring any other legal arrangements.

Conversion Privilege

The conversion privilege allows the insured to convert group coverage to individual coverage without evidence of insurability. The insured has 31 days from the time of ineligibility to convert to the new plan of insurance. The new plan of insurance is an individual plan, normally a hospitalization policy, which will not provide the same benefits that the group plan did. Usually, the group medical expense benefits are more liberal than the converted policy's benefits. Often, those who elect to exercise this conversion privilege do so because frequently they may have insurability problems. To limit adverse selection against the company, the insurer typically offers this conversion plan with reduced or limited benefits.

There are also certain disqualifying events that can result in a termination of coverage before the specified time periods. The dates of these events are as follows:

The first day for which timely payment is not made; The date the employer ceases to maintain any group health plan; The first date on which the individual is covered by another group plan (even if coverage is less); The date the individual becomes eligible for Medicare

Conversion privilege goes into effect only when the insured is no longer eligible for group coverage because of the following circumstances.

The insured's employment is terminated. The insured becomes ineligible for coverage because the class he was insured under is no longer eligible for coverage. (For example, to save expenses, a company that formerly provided coverage for all employees working not less than 20 hours per week may now only provide coverage to the class of employees who do not work less than 40 hours per week.) The insured's dependent child reaches the age specified in the policy as the age of terminating dependent coverage.

Dependents may be any of the following individuals:

The insured's spouse; The insured's children; The insured's dependent parents; Any other person who is dependent on the insured

Mandated Benefits

The law guarantees coverage for a 48-hour hospital stay for new mothers and their babies after a regular delivery (96 hours for a cesarean section birth). Also, it expands coverage for mental illness by requiring similar coverage for treatment of mental and physical conditions. The law eliminates the special limitations included in many policies, such as lifetime spending limits and annual limits applied only to mental health coverage. Small employers (those with 2-50 employees) now cannot be denied group health insurance coverage because one or more employees are in poor health.

Portability

The new law makes it easier for individuals to change jobs and still maintain continuous health coverage. If an employer offers health benefits to its employees, the employer now must make full health care coverage available immediately to newly hired employees who were previously covered at another job (the individual must have had coverage for at least 18 months). Before this change, coverage for preexisting conditions could be delayed for six months to one year, and new hires were subject to a waiting period before being eligible for health insurance. If the worker goes without health insurance for more than 63 days between jobs, the waiting period can be reinstated. Also, an individual with group health insurance who leaves to become self-employed cannot be denied coverage (although the premium charged may be higher). Group plans cannot impose more than a 12-month preexisting conditions exclusion for a person who sought medical advice, diagnosis, or treatment within the previous six months. However, this exclusion cannot be applied in the case of newborns, adopted children, or pregnancies existing on the effective date of coverage.

Age Discrimination in Employment Act (ADEA)

This act applies to employers with 20 or more employees and is directed toward employees age 40 or older. In general, this act prohibits compulsory retirement, except for those in executive or high policymaking positions. Employee benefits, which in the past usually ceased or were severely limited when an employee turned 65, must be continued for older workers, although some reductions in benefits may be allowed. Some states have even stricter laws with regard to retirement and benefits.

Americans with Disabilities Act (ADA)

This act has a widespread impact on almost all facets of American life. With respect to group insurance, it makes it unlawful for employers with 15 or more employees to discriminate on the basis of disability against a qualified individual with respect to any term, condition, or privilege of employment. Employees with disabilities must be given equal access to whatever health insurance coverage the employer provides to other employees, although certain coverage limitations may be acceptable for mental and nervous conditions as opposed to physical conditions, as long as such limitations apply to employees without disabilities as well those with disabilities.

Records and Recordkeeping

This provision contains information as to whether the insurer or the policyholder will maintain records on the insureds. It provides for the policyholder to furnish the insurance company with necessary information to determine premiums and administer coverage.

Employers are obligated to provide notification statements to individuals eligible for COBRA continuation. This notification must be provided under the following circumstances:

When a plan becomes subject to COBRA; When an employee is covered by a plan subject to COBRA; When a qualifying event occurs. In addition to notifying current employees, the company must also notify new employees when they are informed of other employee benefits. Initial notification made to the spouse of an employee or to the employee's dependents must be made in writing and sent to the last known address of the spouse or dependent. Following the notification of eligibility for continuation of benefits, an individual has 60 days in which to elect continuation. If continued coverage is not elected within 60 days, the option to do so is forfeited.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

a federal law that requires employers with 20 or more employees to provide former employees and their families a continuation of benefits under the employer's group health insurance plan. Coverage may be continued for 18 to 36 months. Employees and other qualified family members who would otherwise lose their coverage because of a qualifying event are allowed by COBRA to continue their coverage at their own expense at specified group rates. COBRA specifies the rates, coverage, qualifying events, qualifying beneficiaries, notification of eligibility procedures, and time of payment requirements for the continuation of insurance.

Qualifying Event

an occurrence that triggers an insured's protection under COBRA. Qualifying events include the death of a covered employee, termination or reduction of work hours of the covered employee, Medicare eligibility for the covered employee, divorce or legal separation of the covered employee from the covered employee's spouse, the termination of a child's dependent status under the terms of the group insurance plan, and the bankruptcy of the employer. Termination of employment is not a qualifying event if it is the result of gross misconduct by the covered employee. In short, a qualifying event occurs when the employee, spouse, or dependent child becomes ineligible for coverage under the group insurance contract.

Qualified Beneficiary

any individual covered under an employermaintained group health plan on the day before a qualifying event. Usually this includes the covered employee, the spouse of the covered employee, and dependent children of the employee. Changes made in 1996 amend the definition of qualified beneficiary to include children born or adopted during the 18-month coverage period.

Several provisions apply solely or primarily to group policies. They are provisions that:

describe who is eligible for the group plan; describe when individuals become eligible for the plan; specify the minimum number of individuals and the minimum participation by eligible people required to sustain the plan; specify the amounts of insurance to which individual group members are entitled; and describe the responsibilities of the master policyowner.

five forms of group health coverage, all of which have counterparts in individual policies

disability income; accidental death and dismemberment; hospital expense; surgical expense; and medical expense.

Omnibus Budget Reconciliation Act of 1989 (OBRA)

extended the minimum COBRA continuation of coverage period from 18 to 29 months for qualified beneficiaries disabled at the time of termination or reduction in hours. The disability must meet the Social Security definition of disability, and the covered employee's termination must not have been for gross misconduct. Changes to COBRA in 1996 permit individuals who become disabled during the first 60 days of the 18-month coverage period to extend their coverage to 29 months, so as to extend coverage until the person would become eligible for Medicare (the 5 month waiting period plus 24 months of eligibility for Social Security disability benefits). Under OBRA 1989, an employer may terminate COBRA coverage because of coverage under another health plan, provided the other plan does not limit or exclude benefits for a beneficiary's preexisting conditions. OBRA 1989 also clarifies that COBRA coverage may be terminated only because of Medicare entitlement, not merely eligibility. Before terminating COBRA coverage for beneficiaries at age 65, an employer must first be certain that the individual has actually enrolled under Medicare. Also, 36 months of COBRA coverage must be provided for the spouse and dependent children of a covered employee whose group insurance terminates because of entitlement to Medicare.

Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

intended to prevent group term life insurance plans (usually part of group health insurance programs) from discriminating in favor of key employees. Key employees include officers, the top 10 interest-holders in the employer, individuals owning 5% or more of the employer, or individuals owning more than 1% who are compensated annually at $150,000 or more. TEFRA amends the Social Security Act to make Medicare secondary to group health plans. TEFRA applies to employers of 20 or more employees and to active employees and their spouses between ages 65 and 69. TEFRA also amends the Age Discrimination in Employment Act (ADEA) to require employers to offer these employees and their dependents the same coverage available to younger employees.

Extension of benefits

is similar to continuation of coverage. In this case, benefits that began to be paid while a health insurance policy was in force continue, or are extended, after the insurance contract is terminated. Some states require group policies to provide for extension of benefits for a covered member who is totally disabled at the time of policy discontinuance. States often regulate the marketing and advertising of accident and health insurance policies to ensure truthful and full disclosure of pertinent information when selling these policies. As a rule, the insurer is held responsible for the content of advertisements of its policies. Advertisements cannot be misleading or obscure, may not use deceptive illustrations, and must clearly outline all policy coverages as well as exclusions or limitations on coverage (such as preexisting condition limitations).

Health Insurance Portability and Accountability Act (HIPAA)

took effect July 1, 1997, ensures portability of group insurance coverage and includes various mandated benefits that affect small employers, the self-employed, pregnant women, and the mentally ill