Most employers offer one or more types of group health and disability insur- ance. However, for relatively young employees, who are nonsmokers and have no prior history of major sickness, an individual health insurance policy might
provide a better option. This is because in a group policy the risk of insuring older employees and those with a medical history is spread across the board.
That raises the insurance premiums for everyone, including the younger employees in good health. Even so, a group policy might be more attractive than an individual policy for a number of reasons. (a) A company issuing a group policy significantly reduces its expenses by writing one policy covering a large number of people. (b) By spreading the risks over a large number of diverse people, an insurance company might enjoy substantial cost savings, thereby enabling it to offer cheaper rates to the group members. (c) Group coverage is usually more comprehensive; as compared to individual policies, there are fewer exclusions and limitations ingroup policies. For instance, exclusions and waiting periods are less frequent in a group policy, Generally, the only eligibility require- ment is that a person be an active employee when coverage begins.
Group health insurance, however, has one major disadvantage; leaving the place of employment automatically results in a loss of the group coverage.
While that is true, generally the employee is able to convert the health coverage to an individual policy with the same company within 30 days, although the coverage might not be as good as the group coverage. The premium payments would most likely be higher. The COBRA (discussed later) provides a mechanism for continuing group health coverage that otherwise might be terminated.
Incidentally, all group plans are not alike and not all group plans are bargains.
For instance, some group plans a major medical plan along with more basic coverage, while others do not.
Total amount of claim Company pays this amount
Deductible:
$50 to $1,000 is typical
Insured’s part of coinsurance:
10–30% of claim after deductible is typical
Company’s part of coinsurance:
70–90% of claim after deductible is typical Coinsurance is based on this amount Insured
pays this amount
Figure 5.1 Summary of Health Insurance Deductibles and Coinsurance Source: Author’s own work.
Important Developments
In this section we will present several new developments in group health insurance.
COBRA. Consolidated Omnibus Budget Reconciliation Act (COBRA), which was passed in 1985, permitted workers and their covered spouses and children to remain on a former employer’s health care plan for a set period. A person pays the monthly insurance premium cost by sending funds to the former employer.
The person is granted the same benefits and coverage received as an employee. Generally, COBRA is available for up to 18 months. If the person is determined as disabled by Social Security, an additional 11 months of COBRA eligibility can apply.
Health Insurance Portability and Accountability Act (HIPAA). The HIPAA, which became effective in July 1997, protects the insurability of an insured person. If a person has been insured for the past 12 months, a new insurance company cannot refuse to cover the person and cannot impose preexisting conditions or a waiting period before providing coverage.
When individuals are no longer covered by a group plan or when they leave COBRA coverage, they are entitled to written certification of coverage by the provider.
NMHPA. The Newborns’ and Mothers’ Protection Act of 1996 (NMHPA) requires group health insurance plans and health insurance carriers that offer maternity benefits to allow 49-hour hospital stays after regular deliveries or 96-hour hospital stays following cesarean deliveries. The plans may not require providers to obtain preauthorization for stays up to this period. The minimum stay rules can be waived, but only by way of consultation between the provider and the mother. The rules also provide that a plan or an insurer may not offer less generous benefits for any portion of an extended hospital stay than those provided during the preceding portion of the stay. Although participants remain responsible for paying deductibles, coinsurance, or other cost-sharing expenses, these expenses cannot be greater than those for any preceding portion of the hospital stay.
WHCRA. Women’s Health and Cancer Rights Act of 1998 (WHCRA) applies to insured and self-insured plans and HMOs provided by private and governmen- tal employers. For women who are eligible for mastectomy benefits under the group medical coverage and who elect breast reconstruction, the law requires
that the reconstruction of the breasts and treatment for physical complications of all stages of mastectomy be covered.
Deficit Reduction Act of 2005. In February 2006, President George W. Bush signed the Deficit Reduction Act of 2005 (S.1932) into law. The Act introduced several changes to the Medicaid program that significantly affected planning for estate and long-term care. The law limits the circumstances under which persons may intentionally shelter assets to qualify for Medicaid and establishes rules per- taining to qualified state long-term care insurance partnership plans. The law also affects long-term care insurance policies sold in conjunction with these plans. It also allows states more flexibility in setting up Medicaid cost-sharing plans and premiums.
The Tax Relief and Health Care Act of 2006. The Act introduces multiple changes in health savings accounts (HSAs). In 2016, existing rules limit annual HSA contri- butions to a certain dollar amount, namely, $3,350 for individuals or $6,700 for families. A High Deductible Health Plan is required for participating in an HSA.
The new law makes HSAs more flexible and attractive.
Patient Protection and Affordable Care Act of 2010. On March 23, 2010, President Obama signed the Act into law. The primary focus of the Act is to expand the accessibility to quality health care for all Americans. Reforms focus on eliminat- ing lifetime benefit limits, restrictive annual benefit limits, denial of a health policy application based on preexisting conditions, denial of health benefits related to a preexisting condition and the Medicare Part D “donut hole.” It also expands access to Medicaid by increasing the eligibility hurdle to 133 percent times the poverty level. Dependent coverage on parent’s health care plan is also extended until the age of 26.