Group health insurance provides coverage to a defined group of people, typically employees of a company. Understanding how group coverage differs from individual coverage is essential for the licensing exam.
Master Policy and Certificates
Master Policy (Contract)
| Feature | Description |
|---|
| Holder | Employer (policyholder) |
| Contains | All terms, conditions, benefits, exclusions |
| Negotiations | Between employer and insurer |
| Amendments | Made to master policy |
Certificates of Insurance
| Feature | Description |
|---|
| Recipient | Each covered employee |
| Content | Summary of coverage |
| Legal status | Not the actual contract |
| Purpose | Proof of coverage |
Key Point: The employer holds the master policy; employees receive certificates that summarize their coverage. The certificate is NOT the contract.
Group vs. Individual Underwriting
| Factor | Group Insurance | Individual Insurance |
|---|
| Underwriting basis | Group as a whole | Individual applicant |
| Medical exams | Generally not required | Often required |
| Health questions | Limited or none | Detailed health history |
| Guaranteed issue | Usually | Not typically |
| Adverse selection control | Through eligibility rules | Through underwriting |
Group Underwriting Factors
| Factor | Consideration |
|---|
| Industry | Hazard level of work |
| Group size | Larger = more predictable |
| Age distribution | Younger = lower costs |
| Gender mix | May affect costs |
| Geographic location | Regional cost variations |
| Prior claims experience | Loss history |
Experience Rating
Experience rating adjusts premiums based on the group's actual claims experience:
| Group Size | Rating Approach |
|---|
| Small groups (< 50) | Community rated or manual rated |
| Medium groups (50-500) | Blended experience rating |
| Large groups (500+) | Full experience rating |
Experience Rating Formula
New Premium = (Experience Factor × Claims) + (Credibility Factor × Manual Rate)
| Term | Definition |
|---|
| Experience factor | Weight given to group's own claims |
| Credibility | Statistical reliability of group's experience |
| Manual rate | Standard rate for similar groups |
Example
- Group's claims last year: $800,000
- Manual rate premium: $1,000,000
- Credibility: 70%
- Experience adjustment: ($800,000 × 70%) + ($1,000,000 × 30%) = $860,000
Contributory vs. Noncontributory Plans
Contributory Plans
| Feature | Details |
|---|
| Funding | Employer AND employee share cost |
| Typical split | Employer pays 50-80% |
| Participation requirement | Usually 75% minimum |
| Employee portion | Payroll deduction (pre-tax if Section 125) |
Noncontributory Plans
| Feature | Details |
|---|
| Funding | Employer pays 100% |
| Participation | 100% of eligible employees |
| Adverse selection | Lower risk (all must participate) |
| Administrative simplicity | No employee contributions to track |
Exam Tip: Contributory plans require 75% participation; noncontributory plans require 100% participation. This helps prevent adverse selection.
Advantages of Group Insurance
For Employers
| Advantage | Benefit |
|---|
| Tax deduction | Premiums are business expense |
| Attract talent | Competitive benefits package |
| Retain employees | "Golden handcuffs" effect |
| Employee productivity | Healthier workforce |
| Lower rates | Group purchasing power |
For Employees
| Advantage | Benefit |
|---|
| Lower cost | Group rates below individual |
| No underwriting | Guaranteed coverage |
| Pre-tax premiums | Section 125 cafeteria plans |
| Convenience | Payroll deduction |
| Employer contribution | Reduced personal cost |
Key Group Insurance Principles
Flow of the Master Group Contract
Insurer → Master Policy → Employer → Certificates → Employees
Eligibility Safeguards
To prevent adverse selection, group plans use:
| Safeguard | Purpose |
|---|
| Minimum participation | Ensures healthy mix of risks |
| Eligibility waiting period | Prevents job-hopping for coverage |
| Probationary period | New employees wait before eligibility |
| Active work requirement | Must be working to be covered |
| Definition of eligible employees | Full-time, hours per week |
Common Eligibility Requirements
| Requirement | Typical Standard |
|---|
| Employment status | Full-time (30+ hours/week under ACA) |
| Probationary period | 0-90 days |
| Waiting period | First of month after hire |
| Active at work | Must be working on effective date |
Key Takeaways
- Group health uses a master policy held by the employer with certificates issued to employees.
- Underwriting is based on group characteristics rather than individual medical exams.
- Experience rating adjusts premiums based on the group's claims history.
- Contributory plans typically require 75% participation; noncontributory plans require 100%.
- Employer contributions are often deductible, and employee contributions may be pre-tax.
- Eligibility rules and active-work requirements reduce adverse selection.
Standalone Exam Application Drill
This section is part of the rebuilt standalone New Hampshire Life & Health Insurance (State) guide, so do not treat it as background reading. The official outline expects you to use this topic in mixed questions, where a general concept and a state-specific or exam-specific rule may appear in the same fact pattern.
| Trigger to recognize | How to use it on the exam |
|---|
| Group health uses a master policy held by the employer with certificates issued to employees. | Apply this point directly to exam-style facts and compare it with the closest wrong answer. In practice, ask what fact triggers the rule, what exception might change it, and what answer choice overstates the rule. |
| Underwriting is based on group characteristics rather than individual medical exams. | Apply this point directly to exam-style facts and compare it with the closest wrong answer. In practice, ask what fact triggers the rule, what exception might change it, and what answer choice overstates the rule. |
| Experience rating adjusts premiums based on the group's claims history. | Apply this point directly to exam-style facts and compare it with the closest wrong answer. In practice, ask what fact triggers the rule, what exception might change it, and what answer choice overstates the rule. |
| Contributory plans typically require 75% participation; noncontributory plans require 100%. | Apply this point directly to exam-style facts and compare it with the closest wrong answer. In practice, ask what fact triggers the rule, what exception might change it, and what answer choice overstates the rule. |
How this topic is tested
A typical question will not ask for a vocabulary definition. It will describe a client, applicant, insured, licensee, consumer, property owner, transaction, policy, claim, disclosure, office practice, or regulator action. First classify the topic under National Life & Health Portion: Chapter 23: Group Health Insurance. Then decide whether the issue is a product/coverage rule, a licensing or conduct rule, a contract/document rule, a timing rule, or a remedy/penalty rule. That classification keeps you from picking an answer that sounds true but belongs to a different domain.
Review move
When you miss a practice question from this section, write one sentence in this format: “The trigger fact was ___; the rule was ___; the exception or trap was ___; the correct result was ___.” This converts the section into a usable exam checklist rather than a paragraph you merely reread. If the missed question involved a number, deadline, disclosure, form, coverage condition, ownership status, or regulator authority, make that fact a flashcard.
Final self-check
Before moving on, you should be able to explain the section title in plain English, name the main rule without looking, identify one misleading answer choice, and apply the rule to a scenario that changes one fact. If you cannot do those four things, reread the core text and answer the embedded quiz before continuing.