What is group health coverage?
With group health coverage, a single contract covers the medical expenses of many different people (a group) instead of covering just one person (individual insurance).
Because only one contract is issued for the entire group, the initial cost of establishing group coverage is lower than the cost of issuing a separate policy to each person.
Unlike individual coverage, where each person’s risk potential is evaluated and used to determine insurability, all eligible people can be covered by a group policy regardless of age or physical condition.
The premium for group coverage is calculated based on characteristics of the group as a whole, such as average age and degree of occupational hazard.
To obtain group health coverage, a group must generally have some “affiliation of interests” other than the specific purpose of obtaining insurance. In other words, the group must have been organized for some purpose other than just to get insurance.
This is why employer-sponsored plans and associations are among the most common sources of group health coverage.
What types of providers offer group health coverage?
Group coverage may be obtained from any type of coverage provider. Managed health-care plans — such as health maintenance organizations (HMOs), preferred provider organization (PPO) plans, point of service (POS) plans, and exclusive provider organization (EPO) plans, and traditional indemnity plans — provide group coverage.
How do you get group health coverage?
Find out whether you are eligible for group coverage
As mentioned, to be eligible for group coverage, a group must have some purpose other than obtaining group health insurance.
Many employers offer group health coverage as part of their employee benefits package. Other groups that may offer insurance coverage include churches, clubs, trade associations, chambers of commerce, and special-interest groups.
Apply for coverage during the specified eligibility period
Although your individual health is generally not evaluated when you apply for group health coverage, 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 association insurance, this may be the first 30 days of your membership in the group. 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 will probably have to answer extensive health questions and go through a physical examination. The insurance company can then decide whether or not to insure you, although in the case of employer-sponsored coverage, late enrollees may still obtain coverage, but the preexisting condition period can be extended.
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.
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.
What are the benefits of group coverage?
Individual health is not evaluated in determining insurability
Under a group health insurance arrangement, the insurance company agrees to insure all members of the group, regardless of current physical condition or health history.
The only condition is that the group members must apply for insurance within the specified eligibility period. In the case of employer-sponsored coverage, late enrollees may still obtain coverage, but the preexisting condition period can be extended.
Clearly this is advantageous to those with chronic health conditions who might be considered uninsurable if applying for individual insurance.
Generally less expensive than individual insurance
Because only one policy is issued for the entire group, the initial cost of establishing group coverage is generally lower than the cost of issuing a separate policy to each person.
Also, group 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 is almost certain that the good insurance risks will equal or exceed the bad insurance risks.
Since group insurance costs less for the insurance companies to establish and administer, it generally costs less to purchase.
Employer or association often pays all or part of the premium
In many cases, your employer or association will pick up some or all of the group insurance premium. This can make group insurance even more affordable.
What are the disadvantages of group coverage?
Less freedom to customize policy
In a group insurance situation, the provisions of the policy are negotiated between the insurer and master policyowner, usually an employer or association.
You don’t have the freedom to have certain provisions included or excluded, 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 should you look for in a group policy?
Many of the characteristics of a good group policy are similar to those of a good individual policy. Following are some things you should keep in mind if you have the opportunity to choose between several group insurance options. Note:
Financially stable insurer
Look for an insurer with a favorable rating from A. M. Best, Moody’s, or Standard & Poor’s. It does you no good to have a great insurance policy if your insurance company goes belly-up.
High lifetime payout
Policies often had lifetime limits on the amount of payouts that could be made. The Patient Protection and Affordable Care Act (PPACA) prohibits individual and group plans from placing lifetime dollar limits on available coverage.
This limits your out-of-pocket costs (e.g., deductibles and co-payments). Your maximum is a personal matter, since it really depends on how much you can afford to pay.
Lower out-of-pocket maximums can mean substantially higher premiums, and if you never become seriously ill, you may never have to worry about your out-of-pocket costs.
This allows you to skip your premium payments if you become ill. The provision can be very important if you are unable to work for an extended period of time.
Highest deductible and co-payment you can reasonably afford
Lower deductibles and co-payments mean your costs will be lower if you actually ever get sick, but you may pay dearly for this protection.
By agreeing to a higher deductible or co-payment, you can cut your insurance premiums dramatically. And as long as you retain a reasonable out-of-pocket maximum, you shouldn’t have to worry about medical costs getting out of hand. In addition, PPACA limits annual cost-sharing to the Health Savings Account limits beginning in 2014.