12.4 Group vs. Individual Health and Eligibility

Health coverage is sold two ways: through a group (usually an employer) or to an individual. The national exam tests how the two differ in contract structure, underwriting, and the rules that govern who may enroll. Group insurance dominates the U.S. market because group rates are lower and underwriting is lighter.

Contract Structure

In a group plan, the insurer issues a master contract to the policyowner (the employer or association). Each covered employee receives a certificate of coverage — evidence of insurance, not a separate policy. In an individual plan, the insured is the policyowner and holds the actual policy.

Group Eligibility and Anti-Selection Controls

To prevent adverse selection (only the sick enrolling), group plans impose structural rules:

• Eligible group — the group must form for a reason other than obtaining insurance (an employer, a true trade association, a labor union).
• Eligible persons — typically full-time employees; the plan defines minimum hours.
• Probationary period — a new hire waits a set time (often 30–90 days) before becoming eligible.
• Eligibility (enrollment) period — the window, usually 31 days, in which an eligible person may enroll without evidence of insurability.
• Participation requirements — for noncontributory plans (employer pays 100%), 100% of eligible employees must be covered; for contributory plans (employees share cost), a typical minimum is 75% participation.

Exam Tip: Memorize the participation pairing — noncontributory = 100%, contributory ≈ 75%. The high thresholds exist to dilute the pool with healthy lives.

Enrollment Timing and Late Enrollees

An employee who enrolls during the initial eligibility period is covered without proving insurability. A late enrollee — one who declines and later requests coverage — may have to provide evidence of insurability or wait for open enrollment. ACA-compliant group plans also use special enrollment periods triggered by qualifying life events:

Dependent children are eligible up to age 26 under the ACA, regardless of student or marital status.

Continuation, Conversion, and Individual Underwriting

When group coverage ends, federal COBRA lets employees of firms with 20 or more workers continue coverage — typically up to 18 months (extendable to 29 months for disability or 36 months for certain dependent events) — by paying the full premium plus up to a 2% administrative load. Many group certificates also include a conversion privilege, letting a departing insured convert to an individual policy without evidence of insurability.

Individual coverage is underwritten on the applicant, though the ACA bars denial or rating for pre-existing conditions on major medical and removed the old practice of medical underwriting for those plans. Outside ACA major medical (for example, certain supplemental or short-term products), individual underwriting and pre-existing-condition limits can still apply.

Experience Rating vs. Community Rating

Groups are priced two ways. Under experience rating, the insurer prices the group on its own claims history, so a healthier group pays less — common for large employers. Under community rating, all groups in an area pay the same base rate regardless of their claims, which the ACA largely requires for small groups and individuals (with limited variation for age, geography, family size, and tobacco use). A producer must explain why a large employer's renewal may spike after a bad claims year (experience rating) while a small-group renewal moves with the broader community pool.

Multiple-Employer and Association Arrangements

Small employers sometimes join a Multiple Employer Trust (MET) or Multiple Employer Welfare Arrangement (MEWA) to buy group coverage at better rates by combining into a larger pool. Trade and professional associations can also sponsor group plans for their members. The exam's key point: these arrangements still must meet the eligible-group rule — the underlying group cannot exist solely to obtain insurance. Watch for stems that describe a fictitious 'group' assembled only to buy a policy; that group is not eligible and the contract is not valid group insurance.

Group vs. Individual — Quick Decision Table

Trap: A certificate holder in a group plan is not the policyowner — the employer is. Questions that ask "who owns the group contract?" are testing this point.

Special Enrollment Periods and HIPAA Triggers

Outside the normal open-enrollment window, a special enrollment period (SEP) lets someone join a group health plan after a qualifying life event, such as:

• Marriage, birth, or adoption
• Loss of other coverage (e.g., spouse's job loss)
• Loss of eligibility for Medicaid/CHIP

SEPs prevent people from waiting until sick to enroll while still protecting those with genuine life changes. Late enrollees who lack a qualifying event may face a waiting period or must wait for the next open enrollment.

Eligibility Rules That Block Anti-Selection

Group plans use structural rules to keep healthy and unhealthy members enrolling together:

• Eligible classes defined by conditions of employment (full-time, salaried), never by health.
• Probationary period before a new hire's coverage begins (e.g., 30-90 days).
• Enrollment period after becoming eligible; missing it makes one a late enrollee.
• Minimum participation (often 75% contributory / 100% noncontributory).

Individual coverage, by contrast, is medically underwritten (for non-ACA products) and rated on the single applicant's risk. Under the ACA, individual major medical is guaranteed issue with no health-based denial.

Exam Tip: Group eligibility is tied to employment status, not health; participation requirements and probationary periods are the anti-selection tools.