12.4 Group vs. Individual Health and Eligibility

Health coverage reaches consumers through two channels the exam contrasts repeatedly: individual policies, underwritten one person at a time, and group policies, issued to a sponsor — typically an employer — that covers many people under one master contract.

Each group member receives a certificate of insurance as evidence of coverage; the certificate is not the contract itself. Group coverage is generally cheaper per person because administrative and acquisition costs are spread across many lives, and it uses experience rating for large groups or community rating for smaller groups when setting premiums.

Group vs. Individual at a Glance

A group must form for a reason other than obtaining insurance — a legitimate group — to guard against adverse selection. Eligible group types include single-employer plans, multiple-employer trusts (METs), labor unions (Taft-Hartley), associations, and creditor-debtor groups.

Eligibility and Enrollment Rules

Group enrollment is governed by several timing and participation rules that the exam tests with precise numbers:

• Eligibility period — the window, often 31 days, in which new employees may enroll without proving insurability.
• Open enrollment — a recurring window, commonly annual, when members may join or change plans.
• Probationary period — a wait, such as 30 to 90 days, before a new hire becomes eligible.
• Non-contributory plan — the employer pays 100% of premium, so 100% of eligible employees must be covered, eliminating adverse selection.
• Contributory plan — employees share the cost, so typically at least 75% must participate.
• A late enrollee who missed the eligibility period may be required to submit evidence of insurability.

Continuation: COBRA

The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) lets employees of firms with 20 or more employees continue group coverage after a qualifying event. The continuation period depends on the event.

The qualified beneficiary pays the full premium plus up to a 2% administrative charge, for a total of 102%. Employers with fewer than 20 employees are generally not subject to federal COBRA but may fall under a state 'mini-COBRA' law.

Conversion and HIPAA Portability

When group coverage ends or COBRA is exhausted, a conversion privilege may allow the insured to switch to an individual policy without providing evidence of insurability. The converted policy usually costs more and may offer narrower benefits, but it preserves continuous coverage.

The Health Insurance Portability and Accountability Act (HIPAA) further protects workers who change jobs by limiting how long a new group plan can apply a pre-existing-condition exclusion and by crediting prior creditable coverage. Together, COBRA, conversion, and HIPAA form the safety net the exam expects you to sequence correctly.

Worked Scenario and Traps

Scenario: A company with 50 employees terminates a worker who did not commit gross misconduct. The worker may elect COBRA for 18 months and must pay up to 102% of the group premium. If instead that worker divorces while still employed, the spouse is entitled to 36 months of continuation.

Traps to watch:

• COBRA applies to employers with 20 or more employees; smaller firms follow state mini-COBRA rules.
• The employee receives a certificate, not the master policy.
• A gross-misconduct termination is not a COBRA-qualifying event.
• Non-contributory plans need 100% participation; contributory plans typically need 75%.

Group structure and participation rules

Group coverage rests on a single master contract issued to the sponsor (employer, association, union); each covered person receives a certificate of insurance as evidence of coverage. The insurer underwrites the group as a whole rather than each member, so individual evidence of insurability is often waived — eligibility usually depends on being a full-time, actively-at-work employee who has satisfied any probationary and eligibility waiting periods.

The high participation thresholds exist to combat adverse selection — preventing only the unhealthy from enrolling.

Losing group coverage: COBRA and conversion

When group coverage ends, two protections may apply:

• COBRA (employers with 20+ employees): continues the same group coverage for 18 months (termination or reduced hours), 29 months (disability extension), or 36 months (spouse/dependent qualifying events such as divorce or the employee's death), at up to 102% of the group premium.
• Conversion privilege: Lets a departing member convert to an individual policy without evidence of insurability, usually within 31 days of losing group coverage — but at individual rates and often narrower benefits.

Exam trap: COBRA and conversion are different rights. COBRA keeps you in the group plan temporarily at near-group cost; conversion moves you to an individual policy permanently.

Small employers under 20 employees are exempt from federal COBRA but may be subject to state continuation ('mini-COBRA') laws — a point Delaware addresses in the state chapters.