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To qualify for group coverage, a group must have been formed for a purpose other than obtaining group health insurance — in other words, the coverage must be incidental to the group's purpose. There are generally two types of groups eligible for group insurance: employer-sponsored and association-sponsored.
With an employer-sponsored group, the employer — a partnership, corporation, or sole proprietorship — provides group coverage to its employees, who typically must meet time-of-service and full-time work requirements. As with group life insurance, group health insurance may be either contributory or noncontributory.
An association group (such as an alumni or professional association) can purchase group insurance for its members. The association must have at least 100 members, be organized for a purpose other than buying insurance, have been active for at least two years, have a constitution and by-laws, and hold at least annual meetings. Examples include trade associations, professional associations, college alumni associations, veteran associations, customers of large retail chains, and savings account depositors. Association group plans may also be contributory or noncontributory.
Creditor group insurance, also called credit life and credit disability income insurance, is a specialized use of group life and group health insurance that covers debtors (borrowers) and protects the lending institution against loss from a borrower's death or disability. The contract owner is the creditor (such as a bank, small-loan company, or credit union); the debtor is usually the premium payor, but the lender is the beneficiary. If the debtor dies or becomes disabled, the proceeds are paid to the creditor to liquidate the debt, and the amount of insurance cannot exceed the amount of the indebtedness.
Self-funded plans are funded by the insured (usually the employer) and administered by a third party. A successful self-funded program has: a group large enough to reasonably predict future loss experience; sound statistical data supporting the self-funding concept; a stop-loss contract to assume losses beyond the insured's retention; a third-party administrator to service claims; and flexibility in plan design and administration.
A small employer means any person, firm, corporation, partnership, or association actively engaged in business that, on at least 50% of its working days during the preceding calendar year, employed no more than 100 eligible employees, the majority of whom were employed within the state.
As a condition of transacting business with small employers in this state, every small employer carrier must actively offer small employers at least 2 health benefit plans: a basic health benefit plan and a standard health benefit plan. Basic Care is a managed plan developed with the Health Benefit Plan committee and is lower in cost than the Standard Benefit Plan, which is likewise developed with the committee but provides better benefits at a higher cost.
Each small employer carrier must provide its small employer health benefit plans on a guaranteed issue basis — without regard to health status-related factors — and must issue the plan chosen by the small employer to any small employer that elects coverage and agrees to satisfy the plan's other requirements.
Small employers who do not offer group health coverage may help pay employee medical expenses through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA), an ACA-compliant arrangement designed to pay for medical expenses and monthly premiums associated with individual-market medical plans. In a QSEHRA, the employer is the sole funder of the arrangement, and employee salary reductions are prohibited. For an employer to offer a QSEHRA, the business cannot employ more than 50 full-time employees. Employers may exclude from a QSEHRA employees who have not completed 90 days of service, have not reached age 25 before the start of the plan year, are part-time or seasonal, are covered by a collective bargaining agreement, or are nonresident aliens with no earned income from U.S. sources.
As with group life insurance, group health insurance may be contributory or noncontributory. Under a contributory plan, eligible employees contribute toward the premium (both employee and employer pay a share), and at least 75% of all eligible employees must participate in the plan. Under a noncontributory plan, 100% of eligible employees must be included, and participants do not pay any part of the premium — the employer pays the entire cost. These participation requirements exist to protect the insurer against adverse selection and to reduce administrative costs.
Nonoccupational policies exclude coverage of claims arising from job-related accidents, since the employer is usually covered by workers' compensation, which is the primary coverage for employee disability and medical costs arising out of the performance of a job. Occupational policies cover accidents whether they occur on or off the job.
The purpose of the coordination of benefits (COB) provision, found only in group health plans, is to avoid duplication of benefit payments and overinsurance when an individual is covered under multiple group health plans. This provision limits the total claims paid by all insurers covering the patient to no more than the total allowable medical expenses.
The COB provision establishes which plan is the primary plan — the plan responsible for providing its full benefit amount first. Once the primary plan has paid its full promised benefit, the insured submits the claim to the secondary, or excess, provider for any additional benefits payable, including deductibles and coinsurance. In no case will the total amount the insured receives exceed the costs incurred or the total maximum benefits available under all plans combined (Loss − Amount Covered by Primary Plan = Amount Covered by Secondary Plan).
If all policies have a COB provision, the order of payment is generally determined as follows:
The coordination of benefits provision ensures that benefits are not paid in excess of the total losses incurred.
Under group policies offering hospital, medical, or surgical expense benefits, coverage may be extended to dependents in amounts consistent with a plan that precludes individual selection. If a group disability insurance policy pays dividends or refunds premiums, the dividend or excess premium must be applied by the policyholder for the benefit of insured employees or their dependents.
Group policies must provide equal benefits for the registered domestic partner of an employee, insured, or policyholder as they do for a spouse. Insurers cannot discriminate in coverage between spouses or domestic partners of a different sex and spouses or domestic partners of the same sex.
A blanket policy covers members of a particular group only while they are participating in a particular activity. Such groups include students, campers, passengers on a common carrier, or sports teams. Because covered individuals often come and go, their names are frequently unknown; unlike group health insurance, they are automatically covered and do not receive a certificate of insurance. Blanket policies are commonly written and paid on an accident-only basis.
The California Insurance Code permits insurers to offer blanket insurance to entities that include: newspapers, magazines, or similar publications (for those who deliver, collect payments for, supervise, wholesale, or otherwise distribute the publication); religious, charitable, recreational, educational, athletic, or civic organizations; employers who pay the benefits afforded by a voluntary plan of unemployment compensation disability insurance; employers who provide benefits to any group of workers, dependents, or guests, limited to specified hazards incident to activities or operations of the policyholder; and an entertainment production company providing benefits to any group of participants, volunteers, audience members, or contestants.
Blanket life insurance may be issued for a term not exceeding one year, at premium rates less than the usual rates for such insurance, and blanket policies may be renewed. When the insured pays the policy premiums, the insured may request a copy of the policy from the insurer in the form of a certificate. A person may elect not to be covered under a blanket plan by submitting a written request to the insurer; if more than 10% of persons eligible for coverage elect not to participate, the contract cannot be put into effect, or if already in effect, cannot be renewed.
Underwriting a group policy is unique in that, once the policy is written, every eligible group member must be covered regardless of physical condition, age, sex, or occupation. Group underwriting therefore concentrates on the group as a whole. The cost of the policy varies by the ratio of males to females and the average age of the group. Evidence of insurability is normally not required, since an annual reevaluation allows the premium to be adjusted based on the group's claim experience, and making the premium retroactive for the year is often permitted. Any group replacement underwriting considers loss history, group stability, and composition.
The underwriting process is designed to avoid adverse selection through the following requirements:
Several additional factors affect a group's eligibility and rating structure when applying for medical expense insurance.
The underwriter's function is to select risks acceptable to the insurance company, and the selection criteria used, by law, must be based only on sound actuarial principles or expected experience. The underwriter cannot decline a risk based on blindness, deafness, genetic characteristics, marital status, or sexual orientation. Prime considerations when underwriting health insurance include age, gender, occupation, physical condition, avocations, moral and morale hazards, and the applicant's financial status.
Insurers consider the specific duties of an applicant's occupation, since factors such as high employee turnover or dangerous job duties may affect the group's rating. Insurers also take into account the type of industry applying for group coverage.
Insurers also consider the location of the business (city or county), since this information helps them assess risk and potential losses based on both industrial classification and the demographics and health care costs of a particular area or zip code.
Insurers also look at a group's carrier history. In reviewing carrier history, insurers consider the group's stability — how many different insurers the group has used in the past — and its longevity, the amount of time the group has stayed with a particular carrier. The longer a group has remained with one carrier, the lower the group's rates tend to be.
Disability income insurance provides monthly or weekly income payments to replace part of a worker's lost salary due to illness or injury. When an application for disability income coverage is submitted, insurers must screen out applications likely to produce losses more severe than the rates would anticipate — this is how disability underwriting accounts for medical history.
When writing medical expense insurance, insurers consider whether an applicant has any chronic or ongoing conditions — defined as prolonged, continuing, or lingering illness or disability. Issuing coverage to insureds with chronic or ongoing conditions could produce immediate or very high claims within a short period, resulting in adverse selection and, consequently, higher overall costs and premiums.
Catastrophic conditions (such as earthquakes, floods, and fires) are also considered when writing medical expense insurance. Unusually large numbers of catastrophic losses within a short period, arising from perils that are usually excluded and that do not allow for an accurate pattern of predictability, will adversely skew the law of large numbers.
Insurers also consider whether the group applying for medical expense insurance is providing benefits for disabled employees who are not actively at work, or for disabled dependents of employees. As discussed earlier, the extension of benefits provision allows disabled employees to be treated as though they were not disabled at the time the previous group policy terminated (with a former carrier).
Another factor insurers use in determining a group's eligibility is whether the policy will be contributing or noncontributing, as discussed above — contributing plans require at least 75% eligible participation, while noncontributing plans require 100% participation.
Finally, insurers consider the number of employees participating in the group plan and the applicable participation percentage requirement, along with the number of eligible employees and dependents. There should be no consideration of a dependent's disability when the group member qualifies for coverage, beyond the set guidelines that apply to all dependents of those covered — a dependent's insurability does not enter into rating or eligibility.
Some medical expense insurance plans contain a benefit schedule, which specifically states exactly what is covered under the plan and for how much. Other plans instead incorporate the term usual, reasonable, and customary, meaning the insurance company will pay an amount for a given procedure based on the average charge for that procedure in that specific geographic area.