Consumer Guide to Group Health Insurance

This information is taken from the National Association of Health Underwriters.

What is employer group health insurance coverage?

Group health insurance coverage is a policy that is purchased by an employer and is offered to eligible employees of the company (and often to the employees’ family members) as a benefit of working for that company. The majority of American have group health insurance coverage through their employer or the employer of a family member.

Are all employer group health insurance policies the same?

Many people don’t realize that health insurance is issued differently for different types of employers, and that, because insurance is regulated at the state level of government, the laws regarding health insurance offered by the different types of employers can vary significantly from state to state. Millions of Americans work for small employers, which for health insurance purposes are generally those with 50 employees or less. Millions of other Americans get their health insurance coverage through large employers. Generally, those are businesses with more than 50 employees. The laws about how coverage can be issued to large groups are different than those for small groups, and the way that premium rates are determined is also different. The requirements for sole proprietors purchasing health insurance coverage also vary on a state-by-state basis.

What are the coverage requirements for small employer plans?

Fedral law mandates that no matter what pre-existing health conditions small employer group members may have, no small employer or an individual employee can be turned down by an insurance company for group coverage. This reuirement is known in the insurance indiustry as “guranteed issue.” In addition, each insurance company must renew its small employer health plan contracts every year, at the employer’s discretion, unless there is non-payment of premium, the employer has committed fraud or intentional misrepresentation, or the employer has not complied with the terms of the health insurance contract.

In most, state small employer health insurance companies are allowed to look back at individual group applicants medical histories for pre-existing conditions. Federal law states that small group health insurance ompanies may impose no more than a six-month look-back/12-month exclusionary period for pre-existing conditons, but indiviudal states can reduce these time periods. Small group insurance companies are also required to give employees credit for prior coverage against any pre-existing condition waiting period that my be imposed, as long long as the employee had other health insurance coverage within 63 days of the application for new coverage.

How are premium rates determined for small group employers?

In 38 states, the law allows small group health insurance companies to determine their initial premium rates for each company using a process known as medical underwriting. The other states make small group health insurance companies use processes known as modified community rating or community rating to determine their initial rates.

When small group plans are medically underwritten, employees are asked to provide health information about themselves and their covered family members when they apply for coverage. When determining rates, insurance companies use the medical information on these applications. Sometimes they will request additional information from an applicant’s physician or ask the applicants for clarification. If a company is unable to obtain information necessary to accurately determine the risk of a particular applicant, it will underwrite more conservatively, meaning that the assumption relative to the missing information will be negative rather than positive.

Example: A person has a history of high blood pressure but it is controlled with medication and he is not overweight. If the company is unable to determine if that individual smokes or if he has normal cholesterol, it will assume that the missing information is negative and rate accordingly.

In most states the amount a company can vary a group’s premium rates based on medical underwriting factors is limited to a certain percentage of the average small group insurance rate. This is known as a rating band requirement, and the specifics vary by state.

Example: In a state with a rating band requirement of plus or minus 25%, a small group rate could vary no more than 25% above or below the average small group rate for that geographic area. So if the average premium was $100, a small employer’s rate could be anywhere from $75-$125, based on the overall health status of all the group members.

Who regulates employer group health insurance plans?

Many employer-based health insurance plans are fully insured by a health insurance company. This means the employer contracts with a health insurance company to provide its employees benefits, pays premiums for such coverage, and the insurance company assumes all claims risk. The states regulate fully insured group plans.

Is employer group health insurance available to sole proprietors?

Some states define a small employer group as those that have 1-50 employees, but most require companies to have at least two employees to qualify for group coverage. Insurance companies and the individual states often have specific and strict requirements for very small employer groups to document that they actually are legitimate businesses and have the appropriate number of eligible employees to prevent fraud.

The states that allow sole proprietors to purchase group coverage are often referred to as states that guarantee coverage for “business groups of one.” In some of these states, business groups of one are treated in the same manner as larger employer groups. In others, they are treated as their own distinct pool and rated separately by the health insurance companies. In the states that do not allow for sole proprietors to purchase group coverage, these business owners often purchase individual health coverage. For information about whether or not your state allows for group insurance to be sold to business groups of one, please contact us for more information.

What rights do I have if I lose access to my employer group health insurance coverage?

Millions of people who lose their group health insurance coverage due to a job change, divorce, job loss or other reason are able to keep their group coverage, at least temporarily. Most people who are able to continue their group health insurance benefits are eligible to do so according to the federal Consolidated Omnibus budget Reconciliation Act of 1985 (COBRA). However, COBRA does not apply to all employers, and many states have mandated other continuation-of-coverage options for people who are not covered by COBRA.

Also, many people leaving group insurance for the individual market have group-to-individual health insurance portability benefits that are mandated by federal law. For more information about continuation-of-coverage options, please contact us directly.