12.1 Group Health Fundamentals and Eligibility

How Group Health Insurance Works

Group health insurance covers a defined group of people under a single master contract issued to the policyholder, usually an employer, association, or trust. The individuals covered are not the contract holders; the employer (or sponsor) holds the master policy, and each covered employee receives a certificate of insurance describing benefits, exclusions, and how to file claims. This is the single most-tested distinction on the national portion: in individual insurance the insured owns the policy, but in group insurance the group sponsor owns the master contract and the insured receives only a certificate.

Because the insurer underwrites the group as a whole rather than each person, group health is generally cheaper per person and easier to qualify for than individual coverage. The trade-off is that the employee does not own or control the contract and typically loses coverage when employment ends (subject to continuation rights covered later in this unit).

The Principal Reason for Group Insurance Existing

Groups must be formed for a reason other than obtaining insurance. A 'group formed solely to buy insurance' is prohibited because it would invite adverse selection — only unhealthy people would join. Acceptable groups include:

• Single-employer groups — the most common; one employer, its employees.
• Multiple-employer trusts (METs) / MEWAs — small employers band together under a trust.
• Labor union / Taft-Hartley trusts — jointly administered by labor and management.
• Association groups — members of a trade or professional association, formed for a purpose other than insurance.
• Trustee / debtor groups — e.g., creditor groups covering borrowers.

Eligibility Requirements

To be eligible, a person must usually be a full-time, actively-at-work employee in an eligible class. The actively-at-work provision means coverage for a new entrant is effective only if the employee is actively performing job duties on the effective date; if home sick that day, coverage begins when they return to work. This guards against immediate adverse selection.

Eligible Classes and Probationary (Waiting) Periods

Employers define eligible classes (e.g., 'all full-time salaried employees') using objective, employment-related criteria — never the employee's health. A new hire usually serves a probationary/waiting period before coverage begins. Under the Affordable Care Act (ACA), the maximum waiting period an employer may impose is 90 days. After the waiting period, the employee has an enrollment period (typically 31 days) to elect coverage.

Enrollment Periods and Late Entrants

If an eligible employee enrolls within the initial enrollment period, no evidence of insurability is required. An employee who declines during initial enrollment and later wants in becomes a late entrant and the insurer may require evidence of insurability (a health statement or exam) — and may decline the late entrant — to prevent adverse selection.

The ACA created special enrollment periods (SEPs) triggered by qualifying life events such as marriage, birth or adoption of a child, loss of other coverage, or divorce. An employee experiencing a qualifying event may enroll outside open enrollment, usually within 30 days (60 days for certain Medicaid/CHIP and Marketplace events) — without being treated as a late entrant.

Dependent Eligibility

Under the ACA, plans that cover dependent children must allow them to remain covered until age 26, regardless of marital, student, financial-dependency, or residency status. This is a heavily tested number.

Coordination of Benefits in Group Plans

When a person is covered by two group plans (e.g., as an employee under one and a dependent under a spouse's), the Coordination of Benefits (COB) provision prevents collecting more than 100% of the loss. The primary plan pays first as if no other coverage existed; the secondary plan may pay the remaining eligible expenses up to its limits. For a dependent child covered under both parents, the birthday rule makes the plan of the parent whose birthday falls earlier in the calendar year primary.

Worked COB example: A $1,000 covered claim, primary plan pays 80% = $800. The secondary plan, which also has an 80% benefit, may pay the remaining $200 so the insured is made whole — but COB caps total payment at the actual $1,000 expense; the insured never profits.

Worked Example: Effective Date and Actively-at-Work

Maria is hired March 1 into an eligible class. Her employer imposes a 60-day waiting period, so she becomes eligible April 30. She enrolls within her 31-day initial enrollment window — no evidence of insurability needed. However, on April 30 she is home with the flu and not actively at work. Under the actively-at-work provision, her coverage does not start April 30; it becomes effective the first day she returns and actively performs her duties — say, May 3. Had she enrolled six months later after first declining, she would be a late entrant subject to evidence of insurability.

Note that group plans cannot require evidence of insurability for timely enrollees, which is a major advantage over individual coverage for people with health conditions. The actively-at-work and late-entrant rules are the insurer's primary defenses against adverse selection in the group setting.