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Group Health Insurance

With group health insurance, a single policy covers the medical expenses of many different people. Unlike individual insurance, where each person's risk potential is evaluated to determine insurability, group health insurance allows all eligible members of the group to be covered by one policy, regardless of their age or physical condition. The premium for group insurance is calculated based on the characteristics of the group as a whole, such as average age and degree of occupational hazard.

A note about health-care reform

Although the health-care reform laws passed in 2010 do not require employers to provide health insurance coverage, starting in 2014, an annual penalty of $2,000 per full-time employee will be assessed against large employers (i.e., employers with 50 or more full-time employees) who do not offer health benefits and who have at least one full-time employee enrolled in an insurance exchange receiving a premium tax credit. Large employers that offer "unaffordable" coverage will pay an annual penalty of $3,000 for each of their employees enrolled in an insurance exchange and obtaining subsidies to buy insurance. However, the first 30 full-time employees will not be included in either calculation. Employers with 50 or fewer full-time employees are exempt from any penalties.

Also starting in 2014, employers who offer health coverage (and pay a portion of that coverage) will be required to provide free choice vouchers to employees whose household income does not exceed 400 percent of the federal poverty level and who do not participate in the employer?s health plan. An employee will qualify for the free choice voucher if the cost of his or her premium under the employer?s coverage is between 8 to 9.8 percent of his or her household income. The voucher will equal the amount the employer would have paid on the employee's behalf under the employer's group health plan. The employer will not include the amount of the voucher in the employee's compensation, but will be entitled to a deduction in the amount of the voucher. Employers providing free choice vouchers will not be subject to penalties for any month in which a qualifying employee receives premium credits in the exchange.

When you apply, timing is everything

Many employers offer group health insurance as part of their employee benefits package. Other groups that may offer such coverage include churches, clubs, trade associations, chambers of commerce, and special-interest groups.

Although your individual health is generally not evaluated when you apply for group health insurance, you must apply during the specified eligibility period. For employer-sponsored health insurance, this is often the first 30 days of your employment or the first 30 days following your initial probationary period. For insurance offered by an association, this may be the first 30 days of your membership in the group. Both employers and associations may also have an open enrollment period each year, during which you may sign up for coverage, modify your existing coverage, or add dependents to your coverage. There are also time limits for adding dependents (e.g., within 30 days of marriage or the birth of your child).

The purpose of the eligibility period is to reduce insurance costs by preventing people from waiting until after they discover a health problem to sign up for coverage. If you fail to enroll during this period, the insurance company has the right to treat you as though you were applying for individual insurance. This means you'll probably have to answer extensive health questions and submit to a physical examination. The insurance company can then decide whether or not to insure you.

Starting January 1, 2013, employers must provide written notice to employees of the existence of the state insurance exchange program and their right to purchase insurance through an exchange, the employee's eligibility for a premium tax credit, and the implications with respect to employer contributions for those employee's who elect coverage through an exchange program.

Starting January 1, 2014, group health plans offering health coverage may not contain any waiting period in excess of 90 days.

And, effective upon the issuance of regulations by the Department of Labor, employers with more than 200 full-time employees will be required to enroll (subject to permitted waiting periods) new full-time employees automatically into health insurance plans offered by the employer. Employers must provide employees with adequate notice regarding the auto-enrollment and the opportunity to opt out of such coverage.

The benefits of group coverage

Under a group health insurance plan, the insurance company agrees to insure all members of the group, regardless of their current physical condition or health history. The only requirement is that group members apply for insurance within the specified eligibility period. Clearly, group health insurance is beneficial for those with chronic health conditions who otherwise might be unable to get individual insurance.

Group health insurance is somewhat less risky for insurers than individual insurance, since the risk is spread out among a larger number of people. Within a fairly large group, it's almost certain that the good insurance risks will equal or exceed the bad ones. Because only one policy is issued for the entire group, the cost of establishing and administering group coverage is lower than the cost of issuing an individual policy to each person. This means it generally costs less for you to purchase. And in many cases, your employer or association will pick up some or all of the premiums, making group insurance even more affordable.

Under the health-care reform laws passed in 2010, starting in 2014:

  • Group health plans that provide dependent coverage for children must continue such coverage for the participant's dependents until the child reaches age 26 regardless of the child's marital or student status.
  • Group health plans are prohibited from imposing any preexisting condition exclusions on plan participants who are under the age of 19.
  • Group health plans must provide full coverage (i.e., no deductibles or co-payments) for certain preventative-care items, including immunizations, child and adolescent health screenings, breast cancer screenings and mammograms.
  • Group health plans are prohibited from establishing annual limits on the dollar value of benefits for any participant or beneficiary.
  • Group health plans are prohibited from retroactively cancelling health coverage except when the plan participant engages in fraud or intentional misrepresentation of material facts. In such limited instances, coverage may only be cancelled upon prior notice.
  • Employers are permitted to offer employees enhanced rewards (in the form of premium discounts, waivers of cost-sharing requirements, or benefits that would otherwise not be provided) of up to 30 percent of the cost of employee-only coverage for participating in a wellness program and meeting certain health-related standards.

And, starting June 1, 2014, all health plan policies, individual or group, must cover "essential health benefits". These benefits include the following: (1) ambulatory patient services. (2) emergency services. (3) hospitalization. (4) maternity and newborn care. (5) mental health and substance use disorder services, including behavioral health treatment, (6) rehabilitative and habilitative services and devices, (7) prescription drugs, (8) laboratory services, (9) preventive and wellness services and chronic disease management, and (10) pediatric services, including oral and vision care.

The drawbacks of group coverage

In a group insurance situation, the provisions of the policy are negotiated between the insurer and the master policyowner (usually an employer or association). Therefore, you can't customize your policy. You don't have the freedom to pick and choose provisions, and your deductible amount and co-payment percentage are determined in advance. In some situations, however, you may be able to choose between two or more insurance plans.

What you should look for in a group policy

Sometimes you have to take what you can get, but if possible, look for an insurer that's financially stable--one with an "A" or "A+" rating from A. M. Best, Moody's, or Standard & Poor's. It does you no good to have a great insurance policy if your company goes belly-up.

You'll also want to find a policy with the highest lifetime payout possible. Policies with unlimited payouts are less common these days, but anything less than $1 million may be insufficient to cover you in the event of a catastrophic illness.

If you do have a choice between two offered plans, you'll want to think about the limits you set on your out-of-pocket costs. Also, most employer groups review and compare differences in the health policies they provide to their employees, so check with your benefits or compensation manager to get comparable information about the different plans and covered benefits offered. Many managed care companies and other insurance carriers will send you free marketing brochures about the plan benefits. Lower deductibles and co-payments mean that your costs will be lower if you actually do get sick, but you'll pay dearly for this protection. By agreeing to higher deductibles and co-payments, you can cut your insurance premiums dramatically. As long as you retain a reasonable out-of-pocket maximum, you shouldn't have to worry about your medical costs getting out of hand.