13.3 Group Health, COBRA, and HIPAA Portability

How group health insurance works

In group health insurance, the employer or association is the policyholder and receives a single master contract; individual members receive a certificate of coverage rather than a policy. Underwriting is done on the group as a whole (experience or community rating), not on each member, which is why group coverage is typically cheaper and easier to obtain than individual coverage.

To discourage adverse selection, group plans use eligibility rules: a defined eligible class, a probationary period for new hires, and an enrollment (eligibility) period. Contributory plans (employees pay part) require about 75% participation; noncontributory plans (employer pays all) require 100% participation.

Lawful group types and ERISA

To qualify as an insurable group, the group must exist for a reason other than buying insurance — to prevent a pool assembled solely of high-risk lives. The exam recognizes several lawful groups:

• Single-employer groups — the most common.
• Multiple-Employer Trusts (METs) and Multiple Employer Welfare Arrangements (MEWAs) — pool small employers.
• Association and labor union groups.

Most private employer plans are governed federally by the Employee Retirement Income Security Act (ERISA), which sets reporting, disclosure, and fiduciary standards but does not itself mandate specific benefits.

Contributory vs. noncontributory

An employee who declines during the enrollment period and applies later is a late enrollee and may face evidence of insurability. This participation logic is a favorite exam point.

COBRA continuation

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets employees and dependents keep group health coverage after a qualifying event that would otherwise end it. COBRA applies to employers with 20 or more employees.

The qualified beneficiary pays the full premium plus up to a 2% administrative load (so up to 102% of the group cost). Continuation periods depend on the event:

• 18 months — termination (other than gross misconduct) or reduction in hours.
• 29 months — if the beneficiary is disabled at the time (an 11-month extension; premium may rise to 150%).
• 36 months — divorce, death of the employee, the employee becoming Medicare-eligible, or a child losing dependent status.

COBRA worked example

A full-time employee at a 200-person firm is laid off (not for gross misconduct). The group premium is $700/month.

The qualifying event is termination, so the maximum continuation is 18 months. The beneficiary may be charged up to 102% of $700 = $714/month. If the same person were disabled at termination and qualified for the disability extension, continuation could reach 29 months with the premium rising to 150% ($1,050) during the extension months. Gross misconduct would have disqualified COBRA entirely.

HIPAA portability

The Health Insurance Portability and Accountability Act (HIPAA) protects people who move between group health plans. Its portability rules:

• Guaranteed issue / no exclusion based on health for eligible individuals moving from prior creditable coverage.
• Creditable coverage earned under a prior plan offsets any permitted pre-existing exclusion day-for-day (see 13.2).
• Special enrollment rights triggered by life events such as marriage, birth, adoption, or loss of other coverage — outside the normal open-enrollment window.
• A significant break in coverage (commonly defined by regulation) can reset accrued creditable coverage, so timely enrollment matters.

Conversion privilege

Separate from COBRA, many group plans carry a conversion privilege: when group coverage ends, the member may convert to an individual policy without evidence of insurability, usually within 31 days. The converted policy may cost more and offer narrower benefits than the group plan, but it cannot be denied for health reasons. Conversion is often the fallback once COBRA's 18-, 29-, or 36-month period is exhausted, giving the insured a permanent (if pricier) individual contract.

COBRA vs. HIPAA at a glance

COBRA keeps you where you are for a limited time; HIPAA smooths the transition to the next plan. Mixing up which law does which is a classic distractor pair on the exam.

Coordination of benefits in group plans

When a person is covered by two group plans (for example, their own and a spouse's), the Coordination of Benefits (COB) provision decides which plan pays first so total reimbursement never exceeds 100% of the actual expense. The plan covering the person as an employee is primary over the plan covering them as a dependent.

For a child covered under both parents, many plans apply the birthday rule: the plan of the parent whose birthday falls earlier in the calendar year is primary. The secondary plan then pays the remaining allowable amount, preventing profit from a covered loss.