chapter 12) Employer Group Health Insurance - Important Factors

Eligibility for Coverage

Eligibility requirements reduce risk and administrative costs.

Fully Contributory

Non-employer groups in which members are fully responsible for paying premiums.

Adverse Selection

-Adverse selection is reduced in group insurance for several reasons. First of all, the group exists naturally. This is crucial because groups that exist only for the purpose of obtaining insurance are more than likely to contain a large number of individuals who are sick or approaching death. These individuals increase adverse selection. -Groups can further reduce adverse selection by assuring that as many individuals as possible are eligible for coverage (the law of large numbers applies here). Benefits must be pre-established, so that poor risks do not seek out more insurance coverage. -Second, member turnover is favorable since younger people pose less of a risk than older people. For example, a group that consists of mostly 70-year olds poses a great risk for the insurer, since all of these individuals are likely to have more age-related health issues, and are closer to death. Insurers look for a good balance of older and younger insureds.

*Dependent Eligibility*; Children must be covered from the moment of birth; however, the insurer may require notification of the birth within 31 days in order to continue coverage.

-Dependents include the employee's spouse, children, and dependent parents. -Stepchildren and adopted children are considered children of the employee. -Children must be covered from the moment of birth or adoption; however, the insurer may require notification of the birth or adoption within 31 days in order to continue coverage. -Coverage of dependent children must continue up to age twenty-six (26), or if the dependent child is unable to be employed due to mental or physical impairments and is dependent on the policy owner for support, there is no age limit and coverage will continue. -As with individual insurance policies, newborn children will be covered as dependents under a group insurance policy from the moment of birth. -*Newborn Coverage = Starts At Birth*

Reinstatement of Coverage for Military Personnel

-Federal law requires employers to allow any employee on a military leave to elect and pay for the continuation of coverage. -If coverage is terminated while the employee is on military leave, due to the employee electing not to continue coverage or because the period of service exceeds 18 months, the employee and his dependents may not be subject to waiting periods or preexisting condition exclusions upon reinstatement.

COB Provisions

-For married couples, each individual's own coverage is primary, and the spouse's coverage is secondary. -The *birthday rule* applies to parents whose children are covered under both parents' policies. -*The parent whose birthday falls earlier in the year has the primary plan.* -In divorces and separated couples, the parent with custody over the children has the primary plan. -In addition, *if spouses work for the same employer and are both covered* under the employer group plan, the spouse who has the sickness or accident will receive reimbursement up to the benefit maximum under the contract. -The well spouse's coverage will then kick in to provide any remaining coverage needed up to 100% of the injury bill, but not for any amounts in excess of the claim.

Conversion Privilege

-Group health plans must provide the right of all eligible persons covered under the group policy to convert to an individual policy without evidence of insurability. -Conversion privileges are effective if the person was terminated for any reason except involuntary termination for cause, lost coverage due to the entire class of coverage being discontinued, or the insured's dependent child reaches an age where coverage terminates. -Policies may require the individual to have been covered continuously for a set period of time, *often no more than three months.* -Coverage provided by a conversion policy usually provides benefits most similar to that provided under the group policy; however, the person may elect a lesser form of coverage. Conversion must be made within 31 days of ineligibility in the group plan. -Conversion must be made within 31 days of ineligibility in the group plan.

Coordination of Benefits (COB)

-The coordination of benefits provision defines the method for determining which insurance company is the primary insurer and which insurance company is the secondary insurer. -The primary insurer pays first, up to its policy limits. -The secondary insurer is responsible for costs not covered by the primary insurer. -The primary insurer pays benefits as if the secondary insurer did not exist. -If an individual is enrolled in Medicare, but still remains enrolled under their employer sponsored group health plan, the employer group plan will be the primary insurer and the Medicare coverage will be secondary, as long as the individual remains actively at work. -If an individual is enrolled in a group insurance policy, but continues to pay premiums on an individual insurance policy as well, that individual will still be able to receive full benefits on both policies in the event he or she needs to file a claim. -*Coordination of benefits provisions does not apply to individual insurance plans.*

Persistency Factors

A group's period of coverage affects the risk evaluation in the underwriting process, which affects the premiums set by the insurer. Groups that change insurers often increase their risk, which increases their premiums.

Administrative Capability

As noted earlier, the administrative costs for group health insurance plans are lower than in individual coverage.

Contributory = 75% Participation Noncontributory = 100% Participation

Contributory = 75% Participation Noncontributory = 100% Participation

Events that Terminate Coverage

Coverage of employees and dependents may be terminated only under certain circumstances. Employee coverage may be terminated only if: -employment is terminated, -the employee fails to make premium payments, -the employee's maximum benefits for major medical are already met, or -the master contract is terminated. *Dependent coverage may be terminated only if:* -the dependent fails to make premium payments, -the dependent fails to maintain eligibility requirements, or -the maximum benefits are reached.

Plan Design Factors

Employer-sponsored group health plans may be either contributory or noncontributory. -Contributory plans, where the employee pays premiums, require enrollment of at least 75% of all eligible employees. -Noncontributory plans, where the employer fully funds the plan, require 100% of all eligible employees enroll. These requirements are designed to reduce the insurer's risk and administrative costs.

Annual Open Enrollment

Employer-sponsored group plans must have a 30-day period of open enrollment each year. All eligible employees must be permitted to enroll, change coverage, or add dependents during the open enrollment period. Enrollees do not have to prove insurability during open enrollment. If an employee fails to enroll during the open enrollment period, they may be required to show proof of insurability in order to receive approval for coverage or they will have to wait until the next open enrollment period.

Continuation of Coverage Under COBRA and State Coverage Continuation Acts

Following the Consolidated Omnibus Budget Reconciliation Act (COBRA) enacted by Congress, federal and state governments have enacted a number of laws protecting coverage of insured individuals when employment is terminated. -Large employers are covered under COBRA, which requires that employees be allowed to continue group coverage when terminating employment. -Various states have enacted Health Insurance Coverage Continuation Acts, which cover small employers with 20 employees or less and allow these small groups access to continuation of coverage provisions.

Extension of Benefits

Group insurance generally contains a provision for extension of benefits to covered employees or dependents who become totally disabled. The extension of benefits usually lasts for a period of at least 12 months or until the individual is no longer totally disabled.

Contributory Versus Noncontributory

Group insurance premiums may be paid solely by the policyowner or jointly by the policyowner and the insureds. Contributory plans are paid by both the policyowner and the insureds. This reduces adverse selection because the insureds share in the cost of premiums. Noncontributory plans are paid solely by the policyowner. In group employer policies, employers must pay at least some portion of the premium. Non-employer groups in which the members are fully responsible for paying premiums and the group pays no part of the premiums are called fully contributory plans. Contributory group plans require at least 75% participation of the group's eligible employees. For noncontributory group plans, 100% of the group's eligible employees must participate in the group plan.

Insurer Underwriting Criteria; Groups = Can't Be Formed Only For Insurance

Group insurance underwriters evaluate the risk of the entire group, not of each individual. Group insurance is typically less restrictive than individual insurance policies. Underwriters try to avoid high-risk groups and deny coverage to those groups considered to be an adverse selection. -When the group master policy is delivered, the *place of delivery is chosen based on the place where the policyholder does the most business*, not necessarily based upon the location of the policyholder. -Underwriters accept and deny coverage and set premium rates based on the risk of the group as a whole, evaluating age, sex, and occupation as a group. -*For groups of 50 or more, insurers may not require enrollees' medical information.* -Certificates of coverage are guaranteed issue for eligible employees and are not conditional on individual underwriting or pre-existing conditions. -*Guaranteed issue* is available at the time of hire or during annual open enrollment. -As a requirement for group health plans, the group must have formed *naturally.* -Insurers also require groups to have a *minimum participation level including new member enrollments.* -All members of the group have the same coverage.

Change of Insurance Companies or Loss of Coverage

If an employer changes group plan coverage to another insurer, all employees eligible for coverage by the old plan are automatically covered under the new plan without any probationary period. This is referred to as *no-loss no-gain.*

Coordination of Benefits (COB); The COB provision prevents duplication of benefits, or over-insurance.

In the event that the insured is covered by more than one policy for the same condition or benefit, the coordination of benefits (COB) provision prevents duplication of benefits, or over-insurance. COB provisions are typically included in employer sponsored group policies. Example of over-insurance: Tom has a monthly income of $2,000 and is covered by his group short-term disability policy that provides $1,500 monthly benefits. He is also covered by Linda's group short-term disability policy that provides $1,000 monthly benefits.

Probationary Period

Individuals who join a group must undergo a waiting period prior to being eligible for coverage under the group plan. This waiting period is called a probationary period. Every time new insureds enroll in a group policy, the insurer incurs enrollment costs. Furthermore, groups that have frequent turnover incur great enrollment expense. For this reason, group policies have a probationary period. Probationary periods usually last for the first 90 days of employment.

Insurer Underwriting Criteria

Insurers may require other eligibility requirements to minimize the group's risk, including only providing coverage to full-time employees and requiring a probationary period before an employee is eligible for coverage. When insurers underwrite group coverage, the following are important considerations: -Groups are underwritten as a whole, not based on individual members within the group. -Groups are selected and rated based on the group's average age, proportion of men to women, and occupation. -Insureds under a group policy are typically classified according to their employment (e.g., full-time, part-time, seasonal, salaried, etc.). By classifying employees, the employer decides which class of employees is eligible for coverage. Seasonal and part-time employees are typically not eligible. With *individual policies*, insureds are classified according to their individual risk classification (preferred, standard, substandard, declined). -Applications are brief and include: the applicant's name, social security number, residential address, any dependents, and named beneficiaries. -Applicants usually do not have to undergo a medical exam, unlike some individual plans. -Group size - larger groups provide better loss predictions. -Constant flow of members joining and leaving the group is desirable for insurers, since younger members pose a lower risk than older members. -The group's ability to pay premiums and renew coverage impacts policy issuance - called persistency. In the case of group employer plans, employers are required to pay at least some portion of the premiums; therefore, the group policies are likely to be kept in force. -Each individual enrollee does not have to prove evidence of insurability, unless enrolling after the group enrollment period.

Employee Eligibility

Insurers or employers generally require employees to be full-time, usually at least 30 hours per week. Employees are usually required to fulfill a 30 to 90-day probationary period before they are eligible for coverage.

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Legislation enacted to allow employees and dependents to continue group health coverage for up to 18 months after termination or loss of group eligibility.

Employer Group Health Insurance - Details/Factors

Most health insurance coverage is offered through group plans because the administrative costs are much lower than in individual plans, making the cost of coverage more affordable. The majority of group health plans are employer-sponsored plans.

Legal Requirements

Plans must not discriminate in favor of certain individuals. All eligible individuals must be permitted to enroll in the group health plan.

Coinsurance and Deductible Carryover

When an employer changes insurance companies, any coinsurance or deductibles satisfied on the former plan are carried over and credited to the new plan.