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 Americans have group health insurance coverage through their employer or the employer of a family member.
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 100 employees or less. Millions of other Americans get their health insurance coverage through large employers. Generally, those are business with more than 100 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.
Federal 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 requirement is known in the insurance industry as “guaranteed 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 states, small employer health insurance companies are allowed to look back at individual group applicants medical histories for pre-existing conditions and may decide not to cover certain conditions for a specified period of time. This is known as an exclusionary, or a pre-existing condition, waiting period.
Federal law states that small group health insurance companies may impose no more than a six-month look-back/12-month exclusionary period for pre-existing conditions, but individual 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 may be imposed, as long as the employee had other health insurance coverage within 63 days of the application for new coverage. For more information about California and Colorado’s coverage requirements for small group employer health plans, please call us at Bernardini & Donovan Insurance Services at 1-877-251-2447
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 determine the risk of a particular applicant accurately, it will underwrite more conservatively, meaning that the assumption relative to the missing information will be negative rather than positive.
The alternative to medical underwriting is known as community rating. Community rating requires insurers to charge all individuals who live in the same geographical area the same premium regardless of their age or health status.
Example: One employer’s cost to insure a healthy 27-year-old non-smoking male with no health conditions would be the same cost another employer in the area would pay to insure a 55-year-old male smoker who is suffering from prostate cancer and a heart condition.
A variation on community rating used by some states is called a modified community rating.
With modified community rating, health plans may vary the community rate based on limited factors such as age, gender, or smoker status. State modified community rating laws vary greatly. Some allow for many adjustment factors, but many allow for just a few.
Example: In a state that allows modified community rating with a variation for age, an employer would pay more to insure the 55-year-old male smoker with cancer and a heart condition. However, the insurer would have to use the same rate when calculating premiums for the healthy 27-year-old male as it would for a male employee of a different company who is the same age but suffers from juvenile diabetes.
Annual premium changes for small employer group plans are based in part on the plan participants’ claims history and on the claims history of the company’s overall small employer group pool. Small employer group plan renewal rates also include a component to account for overall increases in the cost of providing health insurance coverage by the company, such as changes in laws that may impact operating costs. These costs are known in the industry as a “trend.” Many states cap renewal rate increases for small employer groups at a specified percentage, plus trend.
For information on how small group health insurance plans are rated in California and Colorado, please call us at Bernardini & Donovan Insurance Services at 1-877-251-2447
Large group health insurance contracts, unlike small group health insurance contracts, do not have to be offered on a guaranteed-issue basis so that a health insurance company could reject an entire large employer group based on its claims history. However, no individual employee who is eligible for benefits can be excluded from large group coverage based on medical history. If a company issues a policy to a large employer, then all of its eligible employees must be issued coverage.
Federal law mandates all group insurance contracts, including large group contracts, be renewed 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. The law also requires health insurance companies to give employees credit against any exclusionary period for pre-existing conditions if they have had prior health insurance coverage within 63 days of obtaining the group coverage from the large employer.
Bernardini & Donovan Insurance Services at 1-877-251-2447 can provide you with specific information about large group insurance plan requirements in California and Colorado.
Large group health insurance is medically underwritten at the time of purchase, with rates based on employee participation and prior claims experience. In a large group employment situation, employees are not generally asked to fill out a medical questionnaire prior to obtaining coverage. The health insurance company bases annual premium changes for large employer groups primarily on the claims experience of the group in past years, as well as any overall increases in the cost of providing health insurance coverage. An example of such costs would be changes in laws that may impact operating expenses.
A health insurance company fully insures many employer-based health insurance plans. 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.
However, larger group health plans (usually several hundred employees or larger) may choose to either fully or partially self-insure their group benefit plans. This means that instead of paying health insurance premiums to a company, the employer sets a pool of funds in reserve and assumes its own risk for health benefit claims. Companies that self-insure generally buy what is known as a stop-loss insurance policy to protect themselves against losses above a certain threshold and contract with either a third-party administrator or a health plan to administer benefits and handle claims. Many employees of companies that self-fund coverage do not even realize that their plan is self-funded by their employer. Self-funded plans are regulated federally by the Department of Labor under the Employee Retirement Income Security Act of 1974 (ERISA), so they are sometimes known as ERISA plans. If employees are uncertain whether they are covered by a fully insured (and state-regulated) plan or a self-funded (and federally regulated) plan, they should ask their employer. Contact information for your state and federal regulators of group health insurance coverage can be obtained through Bernardini & Donovan Insurance Services at 1-877-251-2447
Some states define a small employer group as those that have 1-100 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 insurance coverage. For information about whether or not California or Colorado allows for group insurance to be sold to business groups of one, please call us at Bernardini & Donovan Insurance Services at 1-877-251-2447
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 call us at Bernardini & Donovan Insurance Services at 1-877-251-2447
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