12.1 Group Health Fundamentals and Eligibility

Group health insurance covers a defined group of people, almost always the employees of a single employer, under one master policy (also called the master contract). The employer is the policyowner and the only party that actually holds the contract. Each covered employee receives a certificate of insurance, which is a summary of benefits and proof of coverage but is not the contract itself. When the certificate and the master policy disagree, the master policy controls. Expect at least one exam question that tests this exact relationship.

Why Group Differs From Individual

The central insight of group insurance is that the group, not the individual, is the unit of underwriting. Because a working group naturally contains a healthy mix of risks, the insurer can offer coverage with little or no individual medical evidence.

The First Group Principle

A group cannot be formed for the sole purpose of obtaining insurance. It must exist for some other reason first, such as an employer-employee relationship, a labor union, a trade association, or a professional society. This rule blocks the worst form of adverse selection, where only sick people band together to buy coverage.

Eligibility Rules

To qualify for coverage, an employee normally must satisfy four conditions. These eligibility rules exist primarily to control adverse selection, the tendency of higher-risk people to seek and keep coverage more aggressively than lower-risk people.

• Full-time status — under the ACA, 30 or more hours per week defines a full-time employee for the employer-mandate counting rules.
• Probationary (waiting) period — a defined wait, between 0 and 90 days, before a new hire becomes eligible. The ACA caps the waiting period at 90 days.
• Eligibility (enrollment) period — a window, commonly 31 days, in which an eligible employee may enroll without evidence of insurability.
• Actively-at-work provision — the employee must be actively performing job duties on the date coverage takes effect; if home sick that day, the effective date is deferred.

Exam trap: The waiting period (time before eligibility) and the enrollment period (window to sign up once eligible) are different concepts. Questions often swap the two. Waiting period = up to 90 days; enrollment window = often 31 days.

Late Enrollees and Open Enrollment

An employee who declines coverage during the initial enrollment period and later wants in is a late enrollee. Late enrollees can be required to show evidence of insurability or to wait for the next open enrollment period. Open enrollment is a recurring window (often annual) during which any eligible person may join without underwriting. A qualifying life event (marriage, birth, loss of other coverage) triggers a special enrollment period outside the normal window.

Dependent Coverage

Group medical plans typically extend to the employee's spouse and children. Under the ACA, dependent children must be allowed to remain on a parent's plan until age 26.

This age-26 rule applies regardless of the child's marital status, student status, financial dependency, employment, or place of residence. The child does not need to be claimed as a tax dependent, and a married child may stay on the plan (though the plan need not cover that child's spouse).

Eligible Group Types

Beyond the standard employer group, the exam recognizes several other groups that may be insured: labor unions, trade and professional associations, multiple-employer trusts (METs), and creditor-debtor groups (such as a lender insuring borrowers). Each must satisfy the rule that the group exists for a purpose other than buying insurance.

Eligible Groups and the Insurable-Group Rule

Insurers will write group coverage only for a natural group formed for a purpose other than buying insurance, which prevents adverse selection. The exam lists eligible groups: single-employer groups, multiple-employer trusts (METs) and welfare arrangements (MEWAs), labor union (Taft-Hartley) groups, trade and professional associations, and creditor-debtor groups (group credit). A group assembled solely to obtain insurance is generally not an eligible group.

Enrollment Windows and Open Enrollment

New hires get an initial eligibility period to enroll without evidence of insurability after any probationary period. Those who decline become late enrollees who may face evidence requirements or must wait for the annual open enrollment. Annual open enrollment lets employees add coverage or dependents without medical underwriting.

Worked Eligibility Timeline

A company sets a 30-day probationary period and a 31-day initial enrollment window. An employee hired June 1 becomes eligible July 1 and must enroll by July 31 to obtain guaranteed coverage. If she waits until September, she is a late enrollee and the insurer may require evidence of insurability or defer her to the next open enrollment, illustrating why prompt enrollment preserves guaranteed-issue rights.

Conversion and Continuation at Termination

When employment ends, a departing employee typically has a conversion privilege to an individual policy without evidence of insurability (at individual rates) and, for larger employers, COBRA continuation of the group plan itself.

Additional Exam Traps

• A group formed only to buy insurance is not an eligible group.
• The master policy controls over the certificate when they conflict.
• A late enrollee loses guaranteed issue; open enrollment restores it annually.