Now that you have examined the different types of health plans, you can further focus on health plans available in group insurance. In this section, you will learn about characteristics of group health insurance, eligibility factors, and provisions that apply exclusively to group coverage. You will also learn about small employer group medical plans, and marketing considerations for health insurance providers.
TERMS TO KNOW
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Creditor — a lender of funds
Debtor — a borrower of funds Extension of Benefits — a provision that allows coverage to continue beyond the policy's expiration date for employees who are not actively at work due to disability or who have dependents hospitalized on that date (coverage continues only until the employee returns to work or the dependent leaves the hospital) HIPAA — The Health Insurance Portability and Accountability Act is a federal law that protects health information Persistency — the tendency or likelihood of insurance policies not lapsing or being replaced with insurance from another insurer Self-funded programs — a noninsured plan that uses a trust fund to pay for employees' health care expenses directly Underwriting — risk selection and classification process | |
IMPORTANT! DO NOT PRINT THIS CHAPTER UNTIL YOU READ THIS WARNING.
This chapter will conclude with a section called Group Health Insurance in Depth. Please note that the Group Health Insurance in Depth section is designed to enhance the material that you will read in the rest of the chapter. This information is not required by the State's exam content outline and should therefore not appear on the state exam. This section is unusually long and will consume a large amount of paper if printed.
A. Characteristics of Group Insurance
In a group policy, the contract is between the insurance company and the group sponsor (the employer, union, trust, or other sponsoring organization), as opposed to the individual policy, where the contract is between the insurance company and the insured.
1. Group Contract
In group insurance the policy is called the master policy, and is issued to the policyowner, which could be the employer, an association, a union, or a trust.
2. Certificate of Coverage
The individuals covered under a group insurance plan are issued evidence of coverage in the form of certificates of insurance, or certificates of coverage. The certificate of insurance cannot contain provisions or statements that are unfair, misleading or deceptive. The certificate tells what is covered in the policy; how to file a claim, how long the coverage will last, and how to convert the policy to an individual policy.
3. Experience Rating vs. Community Rating
Group health insurance is usually subject to experience rating, where the premiums are determined by the experience of this particular group as a whole. Individual policies are subject to community rating or pool rating, where the premium is based upon the overall claims experience of the insurance company. Experience rating helps employers with low claims experience because they get lower premiums.
Under the state law (Chapter 501, Regulations 145 and 146), it is mandated that all medical expense health insurance sold to individuals or small groups (2-50 employees) must be community rated. Essentially, all insureds, regardless of age, sex, or occupation, pay the same premium into a predetermined geographic pool, and the claims from that geographic area are paid from the pool's collection. Different rates are permitted for different regions. For example, New York City would likely have higher rates per insured than those utilized in Utica. Prior the enactment of this law, experience rating was utilized by all commercial carriers which penalized individuals and employers with exorbitant renewal increases based on their poor individual claims experience.
B. Types of Eligible Groups
In order to qualify for group coverage, the group must be formed for a purpose other than obtaining group health insurance. In other words, the coverage must be incidental to the group. There are generally 2 types of groups eligible for group insurance: employer-sponsored, and association-sponsored.
1. Employment Related Groups
With an employer-sponsored group, the employer (a partnership, corporation or a sole proprietorship) provides group coverage to its employees. Eligible employees usually must meet certain time of service requirements and work full-time. The same as group life insurance, group health insurance may be either contributory or noncontributory. With a contributory plan the eligible employees contribute to payment of the premium (both the employer and employee pay part of the premium). If a plan is contributory, at least 50% of all eligible employees must participate in the plan. If the plan is noncontributory, 100% of the eligible employees must be included, and the participants do not pay part of the premium. The employer pays the entire premium. The reason for these participation requirements is to guard the insurer against adverse selection and to reduce administrative costs.
Individual Employer Groups
The individual employer normally will provide insurance coverage to all full-time employees. The employer can specify within some limitations how many hours are considered full time, and whether both salaried and hourly employees will be covered. The employer can legally exclude a particular group of employees, like union or part time, from the eligible class of employees.
Professional Employer Organizations
Employers can hire Professional Employer Organizations (PEOs) to handle employee management tasks, including employee benefits and payroll and workers compensation. PEOs achieve this by hiring the client company’s employees. Eventually, the employees of several companies are combined under the umbrella of a single company. This means that the PEO can negotiate better rates on healthcare and workers compensation coverage.
2. Associations (Alumni, Professional, Other)
An association group (alumni or professional) can buy group insurance for its members. The group must have at least 100 members, be organized for a reason other than buying insurance, have been active for at least two years, have a constitution, by-laws, and must hold at least annual meetings. These groups include, but are not limited to, trade associations, professional associations, college alumni associations, veteran associations, customers of large retail chains, and saving account depositors, to name a few. Association group plans may be either contributory or noncontributory.
3. Customer Groups (Depositors, Creditor-debtor, Other)
Creditor group, also called credit life and health insurance, is a specialized use of group life and group health insurance that covers debtors (borrowers). It protects the lending institution from losing money as the result of a borrower’s death or disability. Generally, the borrower is the premium payor but the lending institution is the beneficiary of the policy. The amount of insurance cannot exceed the amount of indebtedness.
4. Blanket Customer Groups (Teams, Passengers, and Others)
Blanket health insurance operates on the same principles as group health insurance. The only difference is that the insured members are not named. The policy is designed for groups where the membership changes frequently. Some examples include students at a particular school, youths attending a Boy or Girl Scout Camp, sports teams, passengers on a common carrier, and professional employer organizations, among others.
New York law allows the following types of groups to provide blanket accident and health policies for their respective constituents:
- Railroad, steamship, motorbus, or airplane;
- Employees exposed to exceptional hazards;
- Schools and camps;
- Volunteer fire departments; or
- Associations.
The major characteristic of blanket insurance is that the individuals who comprise the covered groups are not named on the policies.
C. Regulation of Employer Group Insurance Plans
1. Employee Retirement Income Security Act (ERISA)
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that was enacted to ensure that employees receive the pension and other benefits promised by their employers. ERISA also incorporates and is tied to provisions of the Internal Revenue Code (IRC) designed to encourage employers to provide retirement benefits and other benefits to their employees. Many provisions of ERISA and the IRC are intended to ensure that tax-favored pension plans do not favor the highest-paid employees over rank-and-file employees in the way benefits are provided. To achieve these ends, ERISA has a complex series of rules that cover pension, profit-sharing stock bonus, and most "welfare benefit plans," such as health and life insurance. ERISA supersedes almost all state laws that affect employee benefit plans and has thus created a single federal standard for employee benefits.
Applicability
All forms of health care, life insurance, prepaid legal services, and disability insurance (both long-term and short-term) are considered employee welfare benefit plans. Unfunded benefits or payroll practices, such as vacation, holidays, overtime premiums, holiday gifts, and compensation paid for time not worked are not included. Group-type voluntary insurance programs to which the employer makes no contribution are also excluded.
ERISA treats as pension plans any form of deferred compensation such as deferred profit-sharing, stock purchasing, or savings and thrift plans, as well as pension plans.
Cash bonus plans, cash profit-sharing plans, and severance pay of less than 2 years are considered compensation and are not regulated by ERISA. A bonus plan, payment of which is systematically deferred and paid out over several years, is considered a pension plan.
Fiduciary Responsibilities
An employer's responsibilities under ERISA vary, depending on the type of plan involved. Pension plans, for example, are subject to all rules, including reporting and disclosure, financial management of benefit plan assets, administration of benefit plans, and participation, vesting, and funding requirements. Welfare plans (such as health insurance) need only worry about reporting and disclosure rules and financial management and plan administration standards.
Reporting and Disclosure
Different parts of ERISA are administered by different federal agencies. In general, the Internal Revenue Service (IRS) administers the taxation of contributions and benefits. In the retirement-plan area, IRS is responsible for enforcing funding, participation, and vesting standards. The Pension Benefit Guarantee Corporation is in charge of pension insurance provisions. And the U.S. Department of Labor (DOL) administers reporting and disclosure and the fiduciary requirements of ERISA that regulate the management of plan assets.
There are reporting and disclosure exemptions for small unfunded welfare plans. Governmental and church plans, plans established solely to comply with unemployment compensation laws, workers compensation law, disability insurance laws, and plans that are designed to provide benefits in excess of the deduction limits to certain employees are exempt from ERISA requirements. Unfunded plans maintained "primarily" to provide deferred compensation for a select group of management or highly compensated employees are exempt from the participation and vesting, funding, and fiduciary responsibility requirements of the law. These plans are commonly referred to as top hat plans. They are generally subject (unless some other exemption or partial exemption applies) to the reporting and disclosure, and administration and enforcement provisions of ERISA.
2. Family Medical Leave Act (FMLA)
Under the Family Medical Leave Act of 1993 (FMLA), an eligible employee is entitled to a total of 12 workweeks of leave during any 12-month period for one or more of the following reasons:
- The birth of a child of the employee in order to care for that child;
- The placement of a child with the employee for adoption or foster care;
- The care for the employee's spouse, a child, or parent who has a serious health condition;
- Because of a serious health condition that makes the employee unable to perform the duties of his/her position.
Except if the employee takes leave on an intermittent or reduced-leave schedule, any eligible employee who takes leave under FMLA is entitled upon return from leave to be restored to:
- The position of employment held when the leave began; or
- An equivalent position with equivalent employment benefits, pay, and other terms and conditions of employment.
According to the law, taking leave under FMLA cannot result in the loss of any employment benefit, such as group medical expense insurance, earned prior to the date on which the leave began.
3. Relationship with Medicare
Medicare Secondary Rules
When a person insured under an employer's group health coverage also qualifies for Medicare, it is important to determine which coverage is primary (pays first), and which coverage is secondary (pays second).
| TYPE OF INSURED |
GROUP PLAN
| MEDICARE |
For individuals who are age 65 or older and
| PRIMARY |
SECONDARY
|
For individuals who are age 65 or older and
|
SECONDARY
| PRIMARY |
For individuals who are under the age of 65 and disabled, and
| PRIMARY |
SECONDARY
|
For individuals who are eligible for Medicare due to end-stage renal disease (ESRD)
| PRIMARY for the first 30 months | SECONDARY for the first 30 months, and PRIMARY after that |
Medicare Carve-outs and Supplements
Medicare carve-out and supplement plans are available to individuals enrolled in Medicare, and act as excess insurance that pays for covered expenses not paid by Medicare, such as deductibles or copayments.
4. Nondiscrimination Rules (Highly Compensated)
To avoid nondiscrimination rules violations, and determine the number of employees in the top-paid group (highly-compensated employees), the following employees must be excluded from coverage:
- Have not completed 6 months of service;
- Normally work fewer than 17½ hours per week;
- Normally work during no more than 6 months per year;
- Are under the age of 21;
- Included in a unit of employees covered by an agreement which the Secretary of Labor finds to be a collective bargaining agreement between employee representatives and the employer, except to the extent provided in regulations.
Highly compensated employee means any employee who:
- Owned more than 5% of the interest in the business at any time during the year or the preceding year (regardless of the employee's compensation); or
- For the preceding year, received compensation from the business in excess of specified dollar amount ($120,000 if the preceding year is 2015, 2016, 2017 or 2018), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
D. Types of Funding and Administration
1. Conventional Fully-insured Plans
A conventional fully-insured plan is administered and guaranteed by an insurance company. In return for the premium collected from the insured by the insurer, the insurer assumes the risk of paying the cost of medical expenses that may or may not occur during the policy period.
2. Partially Self-funded Plans
Stop-loss Coverage
Stop-loss coverage is a type of funding in an insurance policy that contains a provision that coverage is only activated upon the insured’s losses reaching a certain level (known as a partially-funded plan). It may take the form of a maximum aggregate limit payable or a maximum limit payable for any one event.