12.4 Group vs. Individual Health and Eligibility
Key Takeaways
- Group coverage uses a master contract held by the sponsor; members receive certificates of insurance.
- Group plans require little individual underwriting and cost less because employers share premium and adverse selection is low.
- Noncontributory (employer pays all) plans require 100% participation; contributory plans require about 75%.
- Late entrants who miss the eligibility period may need evidence of insurability or must wait for open enrollment.
- Federal law lets adult children stay on a parent's group plan until age 26 regardless of student or marital status.
Health coverage is sold to individuals (one applicant underwritten alone) or to groups (a master contract covering many people). The national exam tests how the two differ in underwriting, contracts, eligibility, and cost. State continuation and small-group rules layer on top in your state-law chapters.
Group vs. Individual at a Glance
| Feature | Group Health | Individual Health |
|---|---|---|
| Contract | Master contract to sponsor; certificates to members | Policy issued to the applicant |
| Underwriting | Group/experience rated; little individual underwriting | Full individual medical underwriting (limited by ACA) |
| Cost | Lower (employer often shares premium) | Higher; insured pays full premium |
| Adverse selection | Low — people join for employment | Higher |
| Eligibility | Must be a bona fide group, not formed to buy insurance | Open to qualifying individuals |
The sponsor (employer, association, union) holds the master policy; each covered member receives a certificate of insurance summarizing benefits — not a policy.
Group Eligibility Rules
- The group must be a bona fide group existing for a purpose other than buying insurance.
- A probationary period (often 30-90 days) must pass before a new hire is eligible.
- The eligibility period (typically 31 days) is the window to enroll without proof of insurability after becoming eligible.
- Participation requirements keep adverse selection down: noncontributory plans (employer pays 100%) require 100% participation; contributory plans (employee shares cost) typically require about 75%.
Trap: Noncontributory = employer pays all = 100% must enroll. Contributory = employee contributes = roughly 75% must enroll. Confusing these is a common exam miss.
Enrollment Timing and Late Entrants
- An employee who enrolls during the initial eligibility period needs no evidence of insurability.
- A late entrant (enrolls after the window) may have to show evidence of insurability or wait for open enrollment.
- An open enrollment period is a recurring window when eligible persons may join without underwriting.
- A qualifying life event (marriage, birth, loss of other coverage) opens a special enrollment period outside open enrollment.
Dependent Eligibility and Federal Floor
Under federal law, group plans that cover dependents must allow adult children to remain on a parent's plan until age 26, regardless of student or marital status. Newborns and newly adopted children are generally covered automatically for a set number of days, after which the insured must notify the insurer to continue coverage.
| Eligible dependent (typical) | Note |
|---|---|
| Spouse | Legally married spouse |
| Children to age 26 | Federal floor under the ACA |
| Disabled adult child | May continue past 26 if disabled before the limiting age |
Federal Continuation: COBRA
The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets employees and dependents who lose group coverage continue it temporarily by paying the full premium plus up to a 2% administrative charge. Key national facts:
- COBRA applies to employers with 20 or more employees.
- A qualifying event (termination other than gross misconduct, reduced hours) gives the employee up to 18 months of continuation.
- Events such as divorce, death of the employee, or a child losing dependent status give dependents up to 36 months.
State mini-COBRA laws extend similar rights to smaller employers and are covered in your state-law chapters.
HIPAA Portability and Underwriting Limits
The Health Insurance Portability and Accountability Act (HIPAA) protects employees who change jobs by limiting pre-existing condition exclusions and guaranteeing access to coverage when moving from group to group. Combined with the Affordable Care Act, modern major medical generally cannot deny coverage or charge more for pre-existing conditions.
Trap: HIPAA is about portability and privacy, not premium subsidies. Do not confuse HIPAA's continuity protections with COBRA's temporary continuation of the same employer plan.
An employer pays the entire premium for its group health plan (a noncontributory plan). What participation level is generally required?
In group health insurance, what document does an individual covered employee receive?
Contributory vs. Noncontributory Participation
Group plans set participation rules to prevent adverse selection. In a noncontributory plan the employer pays 100% of the premium, so 100% of eligible employees must be covered. In a contributory plan employees share the cost, so insurers typically require at least 75% participation. Higher required participation reduces the chance that only the unhealthy enroll. These percentages are commonly tested figures.
Open Enrollment and Probationary Periods
Group coverage limits when employees may join: a new hire enrolls during an eligibility/probationary period (often after a 30-90 day wait), and existing employees who declined may join only during the annual open enrollment or a special enrollment triggered by a qualifying life event (marriage, birth, loss of other coverage). A late enrollee who skipped initial enrollment may face delays. Individual coverage instead uses the ACA open-enrollment window plus special enrollment periods.
A group health plan is fully paid by the employer (noncontributory). What participation level does the insurer require?
The Master Contract and Certificates
In group health, the insurer issues a single master contract to the plan sponsor (employer, association, or trust); individual members receive a certificate of coverage summarizing their benefits rather than the full policy. The group sponsor is the policyowner. Because eligibility and premiums are set at the group level, individual members usually cannot be singled out for higher rates based on health, which is a key advantage of group coverage over individually underwritten policies.
Eligible Groups and Multiple-Employer Arrangements
State law specifies which groups may be insured: single-employer groups, labor unions, trade associations, multiple-employer trusts (METs), and multiple-employer welfare arrangements (MEWAs). The group must form for a purpose other than buying insurance to limit adverse selection. Association and trust groups must meet minimum size and participation standards. Recognizing valid group types and the participation thresholds (75% contributory / 100% noncontributory) covers most group-eligibility questions.