What are some distinguishing characteristics of group health insurance?

As in group life insurance plans, master contracts are issued to employers, unions, associations or trustees for the benefit of individuals and their families.

The basic characteristics of group health insurance can be summarized as follows: (1) three parties, that is, (a) the insurer, (b) the employer (or other policyholder), and (c) the individual members of the group; (2) insurance based on group underwriting rather than individual selection, (3) adverse selection reduced by minimum size group requirements and restrictions on the freedom to choose the insurance and the amounts and types of benefits, and (4) simplicity and economy of administration achieved by employer cooperation and employer contributions to the cost of the plan.

What are the basic forms of group health insurance?

There are three basic contract forms: (1) group, (2) franchise, and (3) blanket. Franchise insurance is sold to groups that are too small to qualify for group insurance coverage and oftentimes is non-occupational coverage only. Individual policies are issued instead of master policies with certificates. Blanket insurance covers groups without identifying individually the persons insured. Examples are student groups and members of volunteer fire departments.

What about dependent coverage?

Group health insurance may (and often does) cover dependents. In many instances an individual is protected by both group and individual coverage. If the group policy does not provide all the coverage required, it may be supplemented by an individual policy.

What are the principal kinds of group health insurance?

The principal kinds of group health insurance are (1) medical expense reimbursement insurance and (2) income reimbursement insurance.
The first type provides benefits for all forms of medical care costs; the second pays for temporary or longer term loss of income due to disability, in addition to accidental death and dismemberment benefits.

Medical expense reimbursement and income reimbursement coverages are divided into three classifications of contracts — two covering medical expenses and one covering loss of income — (1) group hospital-surgical medical expense insurance, (2) group major medical expense insurance and (3) group accident and sickness insurance.

In the group insurance business, the group accident and sickness type refers primarily to income loss reimbursement for disability, accidental death, or dismemberment.

Explain the underwriting process and eligibility requirements for group health insurance coverage.

Insurers have their own underwriting requirements with regard to the size of the group. In some instances, no minimum member participation is required by the insurer, but there must be compliance with the statutes of the state in which the employer is located. Where there is no minimum number of insureds, it is sometimes required that the total number must be sufficient to meet the minimum annual premium.

The setting of minimums for the size of the group is usually left up to the underwriting practices of the insurers. Some states do have group health insurance laws or rulings which define group health insurance — a dozen or so states prescribe minimum percentage participation requirements (usually 75 percent) — and many states set the minimum size group anywhere from two to ten members.

All employees may constitute a group, or the employer may select a particular “eligibility group” based on (1) the length of time the employee has been with the company, (2) a certain salary range, (3) occupation, or (4) a combination of the above.

In addition to policies purchased by employers to provide insurance for employees, policies are also issued to such groups as members of labor unions or professional associations.

Group health insurance coverages for medical expenses may in many instances be extended to cover the dependents of each insured employee. Dependents’ coverage may include hospital, surgical, and some forms of medical and major medical expenses.

What about costs?

Many forms of group health insurance (probably about 60 percent) are written on a contributory basis, with the individuals paying a share of the costs. Other plans may be noncontributory. The premium charges for group health insurance plans are based on rates developed for the standard group for the type, size, and duration of benefits.

Such other factors as sex, age, geographical variations, and environmental factors are used to adjust the costs pertaining to the insured groups. The initial, year charges are normally adjusted thereafter on the basis of the actual experience of the group, excepting very small groups.