12.1 Group Health Fundamentals and Eligibility
Key Takeaways
- A group must form for a purpose other than buying insurance; the employer holds the master contract and employees get certificates.
- Eligible employees must generally be full-time and actively at work on the effective date of coverage.
- Dependent coverage runs to children up to age 26 under the ACA, with automatic coverage for newborns and adopted children from birth/placement.
- Under COB, the plan covering a person as an employee is primary over the plan covering them as a dependent; the birthday rule resolves dependent-child overlaps.
- COB never lets the insured collect more than 100% of allowable expense.
Group health insurance covers many people under a single master contract issued to a sponsoring entity, almost always an employer. The employer is the policyholder; covered employees are not parties to the contract. Each employee receives a certificate of coverage that summarizes benefits, but the master contract controls. This structure is the foundation of every group-health exam question, so commit it to memory.
Why Groups Exist
A legitimate group must be formed for a purpose other than obtaining insurance. Employer-employee groups, labor unions, trade associations, and multiple-employer trusts (METs) all qualify. A group assembled solely to buy coverage is invalid because it would attract only people who expect to file claims, defeating the spreading of risk.
The Anti-Adverse-Selection Logic
Group health works because the pool blends healthy and unhealthy lives. If individuals could pick coverage freely the way they choose individual policies, the sick would over-enroll and the healthy would opt out. Carriers prevent this with automatic eligibility rules, probationary periods, and enrollment windows, all designed to keep selection out of the insured's hands.
| Term | Meaning |
|---|---|
| Eligibility period | Window (often 31 days) when a new hire may enroll without proving insurability |
| Probationary period | Waiting time after hire before coverage begins (e.g., 30-90 days) |
| Open enrollment | Annual window when eligible employees may join or change plans |
| Late enrollee | Employee who did not enroll when first eligible; may face evidence of insurability or wait for open enrollment |
Eligibility Requirements
To be eligible, an employee generally must be full-time and actively at work on the date coverage begins. The actively-at-work provision prevents someone too sick to perform their job from triggering coverage on the first day. Part-time, seasonal, and temporary workers are commonly excluded by the plan's definition of an eligible class.
Eligible Classes and Dependents
The employer defines eligible classes by objective criteria (e.g., all salaried staff, all hourly staff working 30+ hours). Classes cannot be drawn to favor one individual. Most group health plans also cover dependents: a spouse and children up to age 26 under the ACA, regardless of student or marital status.
- Newborns are covered automatically from the moment of birth; the plan may require notice within 31 days to continue coverage.
- Adopted children receive the same automatic coverage from placement.
- A handicapped child past the limiting age stays covered if incapable of self-support and dependent on the insured, provided proof is furnished.
Coordination With Other Coverage
When a person is covered by two group plans, the coordination of benefits (COB) provision determines which pays first. The plan covering the person as an employee is primary over the plan covering them as a dependent. For a child covered by both parents, the birthday rule applies: the plan of the parent whose birthday falls earlier in the calendar year is primary.
Worked Example: Coordination of Benefits
Maria is covered as an employee under her own employer's plan and as a dependent under her husband's plan. She incurs a $4,000 covered claim.
- Maria's own plan is primary (covers her as an employee). It pays per its schedule: 80% after a $500 deductible = ($4,000 - $500) x 80% = $2,800.
- Her husband's plan is secondary. Under COB, the secondary plan pays only up to the amount that brings total reimbursement to 100% of allowable expense, never more than it would have paid as primary.
- Remaining unpaid = $4,000 - $2,800 = $1,200. The secondary plan covers this up to its own limit, so Maria's out-of-pocket can fall to $0.
The key trap: COB never lets the insured profit. Combined payments cannot exceed 100% of the actual allowable expense. A candidate who adds both plans' benefits together to exceed the bill has fallen for the most common COB distractor.
The Master Contract and Certificates of Coverage
Group health uses a single master contract issued to the plan sponsor (usually an employer), who is the policyowner; individual employees are not parties to the contract but receive a certificate of coverage summarizing their benefits. This structure produces lower per-person cost and simplified underwriting compared to individual coverage.
To qualify as a group eligible for group rates, the group must exist for a purpose other than buying insurance (an employer, a union, a trade association), preventing adverse-selection "groups" assembled only to obtain coverage. Eligible group types include single-employer, multiple-employer trusts (METs), association, and labor-union (Taft-Hartley) groups.
Eligibility Rules and Probationary/Enrollment Periods
Group plans set objective eligibility to limit adverse selection:
- Eligible class — full-time employees (often 30+ hours); defined by conditions of employment, not health.
- Probationary period — a wait (e.g., 30-90 days) between hire and eligibility.
- Eligibility (enrollment) period — typically 31 days after becoming eligible to enroll without evidence of insurability.
- Open enrollment — a recurring window (often annual) to join or change without underwriting.
- Late enrollee — one who applies after the enrollment period may face evidence of insurability or wait for open enrollment.
Trap: During the initial 31-day eligibility window, an employee enrolls with no medical evidence; miss it and the employee becomes a late enrollee subject to underwriting or delay.
A child is covered as a dependent under both parents' group health plans. The mother's birthday is March 12 and the father's is August 4. Under the birthday rule, which plan is primary?
An employee declines coverage when first eligible, then tries to enroll six months later outside any open enrollment window. The insurer most likely treats this person as a: