13.3 Group Health, COBRA, and HIPAA Portability

How Group Health Works

In group health insurance, the contract (the master policy or master contract) is issued to the group sponsor — typically an employer, labor union, trust, or association. Individual members are not policyowners; they receive a certificate of coverage summarizing their benefits. The employer is the policyowner and remits premiums.

Groups must form for a purpose other than buying insurance (to prevent fabricated groups). Group underwriting evaluates the entire group's characteristics — average age, gender mix, industry, prior claims — rather than each individual's health, which is why guaranteed-issue or simplified-issue is common.

Participation Requirements

High participation thresholds combat adverse selection — if only sick employees enrolled, the risk pool would deteriorate.

COBRA Continuation

The Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985 lets qualified beneficiaries temporarily continue group health coverage after a qualifying event that would otherwise end it. COBRA applies to employers with 20 or more employees; smaller employers are governed by state mini-COBRA statutes.

The continued coverage is identical to the active-employee plan, but the beneficiary pays the full premium plus up to a 2% administrative charge (102%). During an 11-month disability extension, the charge can rise to 150%.

Election window: The beneficiary has 60 days to elect COBRA and 45 days after electing to make the first payment.

COBRA Premium Worked Example

Suppose the full group premium for an employee's coverage is $700/month — $500 paid by the employer and $200 by the employee while active.

Under COBRA the beneficiary pays the entire $700 plus the 2% administrative load:

• $700 × 1.02 = $714/month.
• During an approved disability extension (months 19-29), the load may jump to 50%: $700 × 1.50 = $1,050/month.

The sticker shock is the point of the exam question: COBRA is continuation of the same coverage, but the former employee now shoulders the full cost the employer used to subsidize.

HIPAA Portability and Protections

The Health Insurance Portability and Accountability Act (HIPAA) of 1996 made group coverage more portable and added privacy safeguards. Its core guarantees:

• Portability — credit for prior creditable coverage reduces or eliminates new pre-existing waiting periods when changing jobs without a significant gap (generally 63 days).
• Pre-existing limits — group plans could exclude pre-existing conditions for no more than 12 months (18 for late enrollees); the ACA later eliminated these for compliant major medical.
• No health-status discrimination — eligibility and premiums cannot be based on an individual's health, claims history, or genetic information.
• Guaranteed issue and renewability — insurers must offer and renew coverage to eligible groups.
• Privacy and Security Rules — protect Protected Health Information (PHI), restricting use and disclosure and requiring safeguards by covered entities and business associates.

Distinction: COBRA = temporary continuation of the same plan after a job loss. HIPAA = portability and protections when moving to new coverage. The exam frequently asks which law lets a worker carry credit for prior coverage into a new employer's plan — that is HIPAA, not COBRA.

Coordination of Benefits in Group Plans

When a person is covered by two group plans — for example, as an employee under one and a dependent under a spouse's plan — the Coordination of Benefits (COB) provision prevents the insured from collecting more than 100% of the covered expense. One plan is primary (pays first as if no other coverage existed) and the other is secondary (pays the balance up to its own limits).

Standard COB order-of-benefit-determination rules:

• 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.
• An active-employee plan is primary over a retiree or COBRA plan.

COB protects the insurer pool against over-insurance and removes the profit motive to incur claims.

Group vs. Individual: Quick Contrast

The exam tests whether you can distinguish group mechanics from individual coverage. The key contrasts:

When group coverage ends and COBRA is exhausted (or unavailable), many group certificates grant a conversion privilege to an individual policy without evidence of insurability, though usually at higher individual rates and sometimes limited benefits. This conversion right, COBRA continuation, and HIPAA portability are three different bridges out of a terminating group plan, and the exam likes to test which one applies to a given fact pattern.

COBRA Continuation Periods

COBRA lets employees of firms with 20+ employees continue group health coverage after a qualifying event, paying up to 102% of the full premium. The duration depends on the event: 18 months for termination or reduced hours, and 36 months for the spouse/dependents on divorce, the employee's death, Medicare entitlement, or a child aging out. An 11-month disability extension can stretch the 18-month period to 29 months. Memorize the 18/36-month split by event type.

HIPAA Protections

HIPAA guarantees portability and nondiscrimination: it limits pre-existing exclusions (now largely moot under the ACA), guarantees issue and renewal in the group and small-group markets, bars health-status discrimination in eligibility, and protects PHI (protected health information) through privacy and security rules. A certificate of creditable coverage historically let prior coverage offset a new plan's pre-existing period. Distinguish HIPAA (portability/privacy) from COBRA (continuation).