Group Health Insurance Explained
Updated June 7t h2021
Group health insurance defined
Group health insurance provides coverage to a group of members. Commonly group insurance is used for employer groups, however, it can also be used for associations or organizations. Group contracts are issued to the entity and the employees or members are the subscribers.
Group insurance is generally more affordable for the members as the risk is distributed across the group.
When contracts are issued to an employer group, the employer is generally required to contribute to the cost of the member (employee). The employers are not required to contribute to the members dependents.
Small group 2-50
Large group 101+
Some carriers will allow a husband-and-wife group to count as 2 employees, and some carriers will allow a group of 1 insured if the group has at least one other (non-related) employee on payroll (full or part-time).
Requirements for group health insurance
Full time employees (30 or more hours per week)
In most cases insurance companies require a minimum of 2 enrolled employees, however some allow 1 enrolled employee with as long as there is one other employee. Full or part-time.
Employer contribution - group health plans require an employer to make contributions to the employee only rate. These contributions are set by each individual insurance company's guidelines. Generally, employer contribution requirements are 50% to 70% of the employee only rate.
participation requirements - participation requirements are guidelines set by each insurance company. In most cases, the insurance company requires a minimum of 50% participation to qualify for group health insurance.
Fun fact – the term underwriting is believed to have been started by the Lloyds of London insurance company. The containers shipped by sea would list the contents and a representative of the insurance company would write the company name and premium below the contents. As shipwrecks were common, the owner of the container would pay a premium to ensure the contents would arrive safely. Hence the term underwriter was born.
Today, underwriters assess risk for potential losses. In group health insurance, underwriters’ assess risk bases on a groups age, gender, geographic location, industry type and existing medical conditions.
Fully insured group health plans with 1-50 employees have no medical underwriting questions due to the passage of the Affordable Care Act (ACA). Groups of 51 or more employees, or mid-market groups, may be required to submit a medical loss ratio report from a prior carrier.
Level funded and self-funded plans for groups of 2 to 50 employees require each employee to complete a detailed medical questionnaire. In some cases, larger groups within the 2 to 50 employee range may only require simplified medical questionnaires.
Fully insured group health plans has been the most common policy type for small groups in the past 30 years. Insurance companies offering these plans assume all the risk from an employer. The employer pays a monthly premium on, in most cases and annual contract, and the insurance company pays the claims. These contracts are unilateral.
Self-funded Plans – self-funded insurance plans are generally purchased by large employer groups. With theses plans the employer assumes the claims risk with the option of purchasing stoploss coverage. The optional stop loss coverage covers catastrophic claims which can bankrupt a company. Some major companies purchase administrative services only plans or ASO. when an employer group purchases an administrative service only plan, they assume all risk and are only paying for administrative services from the insurance company. Which generally only includes contract preparation, ID cards, network access, and claims processing.
Level-funded. Level funded policies are written as self-funded contracts. These policies have stop loss coverage which is assessed based on the group size. The employer is responsible for the claims prior to the stop loss coverage covering the excess losses. in other words, the group itself has a large deductible on the group policy. this large deductible is divided by the length of the contract. For example, if an employer has a $12,000 deductible on a 12 month contract, the$12,000 is divided by 12 and the employer pays $1000 a month which is built into the overall premium. If the group's claims or less than $12,000 during the contract year, the employer receives a refund for the unused claims. For more information on this see our video on level funded plans.
HMO plans. Health maintenance organization plans are in network only plans. Members must stay within the provider network, and networks are determined by geographic area. HMO's can cover members worldwide for accidents and emergencies but not for routine care. Most HMO plans also require the member to use a primary care provider, or gatekeeper, and all care must be directed through the members primary care provider.
PPO plans. PPO plans allow members to use in network and out of network providers with no gatekeeper. Members have copayments for Certain services such as doctor office visits and specialist visits. Members are also subject to deductibles for major medical care, and most PPO's have separate deductibles and co-insurance for non-network providers. Although PPO's allow members the flexibility to use non-network providers, coverage is generally reduced, and members are subject to usual, reasonable, and customary charges or URC. For more information on URC, we will provide a link in the description for our video on usual reasonable and customary.
EPO Plans. EPO or exclusive provider organization is like an HMO but with a much smaller network. These plans can leverage a favorable contracts with providers which in turn can result in lower rates.
High deductible health plans. Hi deductible health plans or HDHP are often referred to as HSA plans. However, an HSA is a bank account whereas the HDHP is a health plan. The high deductible health plans are designed to use in conjunction with an HSA bank account.
High deductible health plans require the member to satisfy a deductible before any benefits are paid, except for wellness benefits. There are no copayments or co-insurance until the deductible is met. Most high deductible health plans are written as a PPO which allow members to use both in-network and out-of-network providers.
High deductible health plans have favorable tax advantages as the deductibles and coinsurance are tax free to the member. Contributions to an HSA bank account by the employer are also tax free.
New – Referenced based pricing plans (RBP). A referenced based pricing plan is similar to a traditional indemnity plan as it has no network requirements. Policies are written as a level-funded or self-funded policy, and payments to the providers are based off a percentage of the Medicare fee schedule. Members can access any doctor or hospital with no reduction in benefits. However, usual reasonable a customary charges may apply. Referenced based pricing plans can be substantially less expensive that most group health plans however, educating the members is vital.
Advantages of offering group health insurance
The primary advantage for an employer to offer a group health plan is to attract and retain quality employees. Employees participating in a group health plan can have their premiums paid for with pre-tax dollars. Employers offering a group health plan also reduce their payroll expense and receive additional tax advantages. In addition, members that would otherwise have difficulty purchasing an individual plan, can participate in a high-quality group health plan.
Cost of group health insurance
The cost of a group health plan is deceptively affordable. Typically, employers only pay a percentage of the employee only rate. The percentage the employee pays and the cost to add their dependents, comes out of payroll. In addition, the employer is not matching the payroll taxes on the employees contribution and also receives in additional tax credit for offering the benefit plan.
COBRA vs. State Continuation
COBRA stands for Consolidated Omnibus Budget Reconciliation Act which was enacted in 1985.
Employer groups who have had 20 or more full-time employees for more than 50% of the preceding calendar year are subject to COBRA. This bill allows employees who were insured on a group health plan the ability to continue coverage on the health plan for 18 months. Dependents who were covered on a group health plan can stay on cobra for 36 months.
The COBRA legislation can be complicated. Employers who are subject COBRA should consider contacting a COBRA administration company.
State continuation is for groups of 2-19. Each state can have different rules regarding State continuation. In most cases, State continuation allows employees to continue coverage for 6 to 9 months.
Group health insurance companies
BUCA is an industry has a term for the more well-known health insurance companies. Blue Cross and Blue Shield, United Healthcare, Cigna, and Aetna. These companies insure approximately 50% of the employee in the United States.
Some of the less known companies such as Allied National, National General, Trustmark, and others, can be a great fit for your company. Many of these companies can be an excellent fit as they must compete for market share.
On-line. Some websites give you the ability to submit your company data and receive an instant quote. It is important to note, the quote you receive are commonly fully-insured and are table rated.
Submitting a census to a broker. Submitting a census directly to a broker is recommended. a census form will allow a broker to shop multiple insurance companies both well-known and lesser known. Working with the broker allows for detailed underwriting, and plan options.
To request a quote from The General Agency simply download a census form and return it to us via email, or call us at 972-466-2915
Click here for a sample census form in PDF format
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