12.4 Group vs. Individual Health and Eligibility
Key Takeaways
- Group health insures many people under one master contract issued to the employer or association; members receive certificates of coverage.
- Group coverage uses experience or community rating, requires no individual medical underwriting in most cases, and is generally cheaper than individual.
- Individual health is underwritten and owned by the insured, offering portability the group plan lacks.
- Eligibility for group coverage requires full-time active employment and satisfying any probationary and enrollment-period rules.
- COBRA lets qualified beneficiaries continue group coverage for 18 to 36 months after a qualifying event at their own expense.
Group vs. Individual Health Insurance
Health coverage is delivered either to groups (most commonly employer-sponsored) or to individuals who buy their own policy. The two differ in who owns the contract, how risk is underwritten, and how coverage is priced and continued.
How Group Insurance Is Structured
In group health insurance, the insurer issues a single master contract (master policy) to the policyholder — usually the employer or an association. Individual members do not hold a policy; they receive a certificate of insurance evidencing their coverage.
To qualify as a true insurable group and avoid adverse selection, the group must:
- Exist for a reason other than obtaining insurance.
- Have a steady flow of new members.
- Determine benefits by a formula that prevents individual selection.
The most common eligible groups are single-employer groups; others include trade associations, labor unions (Taft-Hartley trusts), and multiple-employer trusts (METs).
Group vs. Individual: Key Differences
| Feature | Group | Individual |
|---|---|---|
| Contract | One master contract; members get certificates | Insured owns the policy |
| Underwriting | The group is underwritten; little/no individual medical exam | Each applicant individually underwritten |
| Rating | Experience rating (large groups) or community rating (small groups/ACA) | Based on the individual's risk class and (under ACA) age, area, tobacco |
| Cost | Usually lower; employer often shares premium | Usually higher |
| Portability | Tied to employment; lost on termination (see COBRA) | Stays with the insured |
Experience rating prices a large group on its own past claims; community rating spreads risk across all members of a community or pool, which the ACA requires for individual and small-group plans.
Eligibility and Enrollment
To be eligible for employer group coverage, an employee generally must be a full-time active employee (commonly 30+ hours/week). Key timing rules:
- Probationary (waiting) period — a span of new employment (e.g., 30–90 days) before coverage begins.
- Eligibility period / open enrollment — a window (often 31 days) during which an eligible employee may enroll without evidence of insurability.
- Late enrollee — an employee who enrolls after the eligibility period may face evidence-of-insurability requirements or wait for the next open enrollment.
Noncontributory plans are 100% employer-paid and require 100% employee participation; contributory plans are shared-cost and typically require at least 75% participation to limit adverse selection.
Continuation of Coverage (COBRA)
The federal Consolidated Omnibus Budget Reconciliation Act (COBRA) requires employers with 20 or more employees to let qualified beneficiaries continue group health coverage after a qualifying event. The continuee pays the full premium plus up to a 2% administrative charge.
| Qualifying event | Continuation period |
|---|---|
| Termination (not for gross misconduct) or reduced hours | 18 months |
| Disability (during the 18-month period) | Extended to 29 months |
| Death of employee, divorce, loss of dependent status, Medicare entitlement of employee | 36 months |
Smaller employers may fall under state "mini-COBRA" laws. An insured who exhausts COBRA may convert to an individual policy or buy ACA marketplace coverage during a special enrollment period.
Scenario and Traps
Scenario: Dev works 35 hours/week, finishes a 60-day probationary period, and is offered a contributory plan. The employer needs 75% of eligible employees to enroll. Dev declines during open enrollment, then tries to join two months later — he is now a late enrollee and the insurer may require evidence of insurability.
Traps to avoid:
- Noncontributory = 100% participation; contributory = usually 75%. Students reverse these.
- COBRA continuee pays the full premium (the employer subsidy ends) — coverage is not free.
- The 36-month events involve a dependent or family change; the 18-month events involve the employee's job.
Under COBRA, an employee who is terminated (not for gross misconduct) is generally entitled to continue group health coverage for up to:
In a noncontributory group health plan, what level of eligible employee participation is required?
Conversion, Portability, and Small-Group Rules
When group coverage ends and COBRA is exhausted or unavailable, an insured often holds a conversion privilege to an individual policy issued without evidence of insurability, though at the insurer's individual (usually higher) rate. The conversion request and first premium are generally due within 31 days of the group coverage terminating.
Small-group reforms further separate the two markets. Under the ACA, plans sold to groups of roughly 1–50 employees (the small-group market) and to individuals are guaranteed issue and community rated — the insurer may vary premiums only by age (within a 3:1 band), geographic area, tobacco use (up to 1.5:1), and family size. Large groups (51+) remain experience rated on their own claims history.
| Concept | Group | Individual |
|---|---|---|
| Issued without medical exam | Usually yes | No (subject to ACA guaranteed issue in the individual market) |
| Premium variation | Experience (large) / community (small) | Age, area, tobacco, family |
| Owner of the contract | Employer/association | The insured |
Trap: Students confuse continuation (COBRA — keep the same group plan temporarily) with conversion (switch to a new individual policy permanently). They are different rights triggered by the same event.