12.1 Group Health Fundamentals and Eligibility
Key Takeaways
- The employer holds one master policy; each insured employee receives a certificate of coverage, which is evidence of, but not the actual, contract.
- Group underwriting evaluates the group as a whole, so individual medical exams are usually waived and coverage is typically guaranteed-issue at initial enrollment.
- Eligible groups must be formed for a purpose other than obtaining insurance to prevent adverse selection.
- An eligible employee must generally be full-time, actively at work, and have satisfied any probationary and eligibility (waiting) periods.
- Open enrollment and special enrollment periods limit when employees may join without evidence of insurability.
Group health insurance covers a defined group of people, most often the employees of an employer, under a single contract. The exam tests how this structure differs from individual coverage and how eligibility rules keep healthy and unhealthy members in proportion.
The Master Policy and Certificates
The insurer issues one master policy (master contract) to the group sponsor (the employer, association, or trust). The sponsor is the policyowner; individual members are the insureds.
| Feature | Master Policy | Certificate of Insurance |
|---|---|---|
| Held by | Employer/sponsor | Each covered employee |
| Legal status | The actual contract | Evidence of coverage, NOT the contract |
| Contents | All terms, benefits, exclusions | Summary of benefits and member rights |
| Negotiated by | Sponsor and insurer | Issued automatically |
A frequent trap: the certificate is not the contract. If a dispute arises, the master policy controls.
Group arrangements take several forms beyond a single employer. Multiple-employer trusts (METs) and association groups let small employers band together to obtain group rates, and labor union and trustee groups also qualify. In every case the sponsor holds the master contract and members hold certificates.
Group vs. Individual Underwriting
The insurer underwrites the group as a whole rather than each person. Because a large pool of members spreads risk predictably, individual medical exams and detailed health questions are usually waived and coverage is guaranteed issue when the member first becomes eligible.
| Factor | Group | Individual |
|---|---|---|
| Underwriting basis | Entire group | Each applicant |
| Medical exam | Usually none | Often required |
| Issue basis | Guaranteed at initial enrollment | Based on insurability |
| Premium | One group rate, often experience-rated | Based on the individual |
Eligible-Group Requirement
To qualify, the group must have been formed for a reason other than buying insurance (an employer, a labor union, a trade association). This prevents people from banding together simply because they are sick, which would destroy the risk pool.
Eligibility of Individual Members
An employee must satisfy several conditions to be eligible.
- Full-time status — most plans require a minimum number of hours, commonly 30 hours per week. Part-time, seasonal, and temporary workers are frequently excluded by the plan's eligibility definition.
- Actively-at-work provision — coverage begins only when the employee is performing normal duties on the effective date; a member home sick that day may have coverage deferred until they return.
Two timing rules round out eligibility.
- Probationary (waiting) period — a 30-to-90-day delay after hire before coverage starts. The ACA caps employer waiting periods at 90 days.
- Eligibility period — typically a 31-day window after the waiting period ends, during which the employee may enroll without evidence of insurability.
Enrollment Timing
| Period | What it allows |
|---|---|
| Initial eligibility (open enrollment) | Join guaranteed-issue, no health questions |
| Annual open enrollment | Add/drop coverage once per year |
| Special enrollment | Mid-year join after a qualifying life event (marriage, birth, loss of other coverage) |
| Late enrollment | After the window closes; insurer may require evidence of insurability |
The enrollment structure is itself an adverse-selection control. By concentrating guaranteed-issue enrollment into a defined window and forcing late entrants to prove insurability, the plan prevents employees from waiting until they are sick to sign up. Special enrollment periods are the narrow exception, triggered only by genuine life events that change a person's coverage needs.
Worked example: An employee hired June 1 has a 60-day waiting period. Coverage cannot begin before August 1 (well within the 90-day ACA cap). If she is hospitalized on August 1, the actively-at-work rule may delay her effective date until she returns to work.
Dependents and Coverage Continuation
Most group medical plans extend coverage to the employee's dependents: a legal spouse and children. Under the ACA, plans that cover dependent children must make coverage available until the child reaches age 26, regardless of the child's marital, student, residency, or financial-dependency status.
| Dependent | Eligibility note |
|---|---|
| Spouse | Legal spouse; domestic partners covered only if the plan elects |
| Natural/adopted child | Covered to age 26 under ACA |
| Stepchild / foster child | Usually included in the plan's child definition |
| Disabled adult child | May continue past 26 if disabled and dependent before that age |
Coordination of Benefits (COB)
When a person is covered by two group plans (for example, an employee covered by their own plan and as a spouse under another), the coordination of benefits provision prevents the insured from collecting more than 100% of expenses. One plan is primary (pays first, as if no other coverage exists) and the other is secondary (pays the balance up to its limits).
- For an employee, their own employer's plan is primary; coverage as a dependent under a spouse's plan is secondary.
- For a child covered under both parents, the birthday rule applies: the plan of the parent whose birthday (month and day) falls earlier in the calendar year is primary.
Worked example (COB): A child's covered hospital bill is $3,000. The mother's plan (birthday March 4) is primary and pays $2,400. The father's plan (birthday September 9) is secondary and pays the remaining $600, so the family pays $0—but the total reimbursement never exceeds the $3,000 incurred.
An employee is hospitalized on the date his group coverage is scheduled to begin. Which provision most likely delays the start of his coverage?
Under a group health plan, the document the individual employee receives is the: