Consumer Guide to Group Health Insurance
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. A group health insurance plan is a key component of many employee benefits packages that employers provide for employees. The majority of Americans have group health insurance coverage through their employer or the employer of a family member. One of the advantages for employees in a group health plan is the contribution most employers make toward the cost of the health coverage premium – in many cases, employers pay one-half or more of the monthly premium for an employee. Another advantage is that most employers have established Premium Only Plans (often called POP plans) that allow employees to pay any employee-required contributions to premiums on a pre-tax basis. Between the employer contributions, which aren’t taxable for employees, and the POP plan, employer-provided health insurance is significantly subsidized due to these tax breaks.
Are all employer group health insurance policies the same?
Historically, insurance has been regulated in large measure by each state. Therefore, the laws regarding health insurance offered by the different types of employers can vary significantly from state to state. However, with the implementation of the Affordable Care Act (ACA), the federal government also regulates insurance. This is particularly true for individuals purchasing coverage on their own as well as for smaller employers with 50 or fewer employees.
Also, different types of employers may offer different benefit plans. 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.
What are the coverage requirements for small employer plans?
At this time, small employers are not required to offer health insurance to employees. Many do so because they believe that health insurance coverage is a valued employee benefit that helps employers attract top employees and retain them. State and federal laws apply to varying degrees – again based on factors including the number of employees, the type of business and whether an insurance company is providing the coverage.
The Affordable Care Act requires that insured small group plans offer health plans that meet certain benchmarks. The benchmarks are represented by the metal levels of platinum, gold, silver and bronze. Each metal level tier plan is designed to provide the same average level of benefit to an enrollee.
The tiers are based on the percentage the plan pays of the average overall cost of providing essential health benefits to members:
- Platinum plans are the most generous and more expensive. These are designed to pay as much as 90% of medical expenses
- Gold plans are designed to pay 80% of medical expenses
- Silver plans are expected to pay 70% of medical expenses
- Bronze plans are expected to pay 60% of medical expenses.
It’s important to note that the metal tiers reflect what the plans will pay on average. These percentages are not the same as coinsurance, which calls for an individual to pay a specific percentage of the cost of a specific service.
There are other myriad requirements that apply to group health in addition to those required by the ACA. There are laws that address benefit communications (ERISA), claims appeals (ERISA) and portability of coverage (HIPAA) among others.
Both the ACA and the federal HIPAA law mandate 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.
Small employers may purchase insurance plans that are provided through the new SHOP markets operating in each state or in the market outside the SHOP. Health insurance plans that are offered in the SHOP exchange are generally also available in the market outside of the SHOP. It’s important to note that an employer that wishes to claim the Small Business Health Insurance Tax Credit must purchase a SHOP-based plan.
Your state’s Department of Insurance or other state agency that regulates insurance in addition to a professional insurance broker licensed to sell and service insurance in your state is also a good resource for information.
How are premium rates determined for small group employers?
Premium rate determination with the advent of the ACA is significantly different than has been the norm in many states prior to the ACA law. Small group insurance plans are now rated as modified community rating.
With modified community rating, health plans may vary the community rate based on limited factors such as age, geography or smoker status.
Example: With modified community rating with a variation for age, the rate is higher 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 who is the same age but suffers from juvenile diabetes.
Depending on the rules applicable in a state, employers may be able to provide their employees with choices of different insurance companies; different plans within a metal tier or choice of different plans at different metal tiers.
What are the coverage requirements for large employer groups?
Large group health insurance contracts also have to be offered on a guaranteed-issue basis, so a health insurance company cannot reject a large employer group based on its claims history. No individual employee who is eligible for benefits can be excluded from large group coverage based on medical history. 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.
How are premium rates determined for large employer groups?
Large group health insurance is medically underwritten at the time of purchase, with rates based on employee participation and prior claims experience, if available. In a large group employment situation, employees are not generally asked to fill out a medical questionnaire prior to obtaining coverage. The employees may be asked some limited medical questions depending on the employer size and whether the employer has a record of claims experience. 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.
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. Implementation of the ACA gives the federal government more authority over larger group health insurance plans than has previously been the case. ACA governs provisions ranging from employee waiting periods before coverage begins to the types of preventive services that a plan must offer.
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 is also called self-funding. This means that instead of paying health insurance premiums to a company, the employer sets a pool of funds in reserve and assumes the risk for health benefit claims. Companies that self-insure generally buy what is known as a stop-loss insurance policy to protect the employer’s assets against losses above a certain threshold. They also 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 - and in fact, all employer-provided health benefit 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.
A self-funded plan does not have to meet all of the insurance laws and requirements imposed by a state. If a state mandates coverage for a medical service or treatment, e.g., in vitro fertilization, a self-funded plan providing coverage to employees in that state would not have to provide the in vitro fertilization coverage.
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 states 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. Employers generally have to provide payroll tax documentation validating who is an employee.
In the past, some states that allowed sole proprietors to purchase group coverage were often referred to as states that guarantee coverage for “business groups of one.” The ACA has eliminated this option of “business groups of one.” Instead, these business owners have been directed to purchase coverage in the individual market whether through the marketplace or outside the marketplace.
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 reasons 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. In some states, continuation coverage mandated by the state may be more generous than COBRA. The benefit summary booklet provided by the employer may provide details about continuation coverage or who to contact for additional information.
Also, many people leaving group insurance will have the option to enroll in individual coverage. Depending on the individual’s circumstances, they may be able to qualify for a special enrollment period to enter the individual insurance exchange and apply for a subsidy. However, once a person enrolls in COBRA or state continuation, their options to purchase individual coverage are more limited. Once COBRA coverage has begun, a person can only enroll in individual coverage during the individual annual open enrollment period or at the end of their COBRA coverage.