12.4 Group vs. Individual Health and Eligibility
Key Takeaways
- Group health is issued to an entity under a master contract; members receive certificates of coverage.
- Group plans use experience or community rating and are generally guaranteed issue with no individual underwriting.
- Eligibility rules bar adverse selection: probationary periods, eligibility periods, and actively-at-work clauses.
- Individual health is owned by the policyholder, is portable, and is medically underwritten outside ACA marketplace rules.
- COBRA continues group coverage up to 18 months (36 for certain events) at up to 102% of premium.
Group vs. Individual: The Core Contrast
In a group plan, the insurer issues one master contract to a sponsoring entity (employer, association, or union). Individual members are not parties to the contract; they receive a certificate of coverage summarizing their benefits. In an individual plan, the policyholder owns the contract directly.
| Feature | Group Health | Individual Health |
|---|---|---|
| Contract holder | The employer or sponsor | The insured person |
| Evidence to member | Certificate of coverage | The policy itself |
| Underwriting | Group basis, usually guaranteed issue | Individual (or ACA guaranteed issue) |
| Rating | Experience or community rating | Individual rating |
| Cost | Lower; employer often shares premium | Higher; insured pays full premium |
| Portability | Lost at termination (COBRA may continue) | Fully portable |
Group Underwriting and Rating
Groups are underwritten as a unit, so individual members generally are not medically examined. To qualify, the group must exist for a reason other than obtaining insurance (a bona fide employer-employee relationship, for example). Insurers price groups two ways:
- Experience rating: premium reflects the group's own claims history. Larger groups are usually experience-rated.
- Community rating: premium reflects the experience of the wider community or region. Small groups under the ACA are community-rated, which spreads risk.
Exam Tip: A large employer with a healthy workforce benefits from experience rating; a small group with sicker-than-average members benefits from community rating.
Eligibility Provisions That Block Adverse Selection
Adverse selection is the tendency of higher-risk individuals to seek or retain coverage disproportionately. Group plans control it with timing rules:
| Provision | Purpose |
|---|---|
| Probationary (waiting) period | New hires must work a set time (e.g., 30-90 days) before becoming eligible |
| Eligibility (enrollment) period | A 31-day window to enroll without proof of insurability |
| Actively-at-work clause | Employee must be working on the date coverage begins |
| Late enrollee status | Joining after the window may require evidence of insurability |
Under the ACA, an employer waiting period for full-time employees (30+ hours per week) may not exceed 90 days. Late enrollees historically faced underwriting or limited enrollment to discourage waiting until sick to enroll.
Continuation and Portability: COBRA and HIPAA
When group coverage ends, federal law provides bridges.
COBRA (Consolidated Omnibus Budget Reconciliation Act):
| Element | Rule |
|---|---|
| Applies to | Employers with 20 or more employees |
| Standard duration | 18 months |
| Extended duration | 36 months (divorce, death of employee, child losing dependent status) |
| Premium | Up to 102% of the full group premium (employer + employee share + 2% admin) |
| Election window | 60 days to elect after the qualifying event notice |
HIPAA (Health Insurance Portability and Accountability Act): limits pre-existing condition exclusions, guarantees access when moving between group plans, and prohibits discrimination based on health status. Combined with ACA guaranteed issue, an individual leaving a group plan can move to marketplace coverage without medical underwriting.
Worked example: An employee's group premium is $600 per month (employer pays $450, employee pays $150). Under COBRA the former employee pays up to 102% of the full $600, or $612 per month, far more than the $150 they paid while employed, because the employer subsidy ends.
Tax Treatment and Individual Renewability
Group health is tax-advantaged for employees: the employer's premium contribution is excluded from the employee's taxable income, and benefits paid for medical care are generally received tax-free. This favorable treatment, plus group rating, is why employer coverage is usually cheaper than individual coverage.
Individual health policies are classified by their renewability provision, which the exam tests directly:
| Renewal Class | Insurer's Rights |
|---|---|
| Noncancelable | Cannot cancel or raise the premium; guaranteed to a stated age |
| Guaranteed renewable | Must renew, but may raise premiums for an entire class |
| Conditionally renewable | May refuse renewal only on stated conditions (not health) |
| Optionally renewable | May refuse renewal on any anniversary or premium due date |
Exam Tip: Noncancelable locks both renewal and premium; guaranteed renewable locks renewal but allows class-wide rate increases. Mixing these up is a classic distractor.
Finally, eligible dependents under both group and individual ACA-compliant plans include a spouse and children up to age 26, regardless of student, marital, or financial-dependency status, an enrollment rule that interacts with the eligibility windows described above.
In a group health plan, what document does an individual covered member receive, and who holds the actual contract?
A worker's full group premium is $600/month, of which the employer paid $450. After termination she elects COBRA. Approximately what monthly premium will she pay?
Probationary and eligibility periods for new hires
Group health uses two timing provisions the exam contrasts. The probationary (waiting) period is the time a new employee must wait before becoming eligible (commonly up to 90 days). The eligibility (enrollment) period is the window — often 31 days — during which a newly eligible employee may enroll without evidence of insurability. Missing that window makes the employee a late enrollee, who may have to show insurability or wait for open enrollment.
Actively-at-work and adverse-selection controls
The actively-at-work provision requires an employee to be performing normal duties on the day coverage takes effect, preventing someone from enrolling while already disabled. Minimum participation (e.g., 75% of eligible employees) and employer-contribution requirements exist for the same reason: to keep healthy and unhealthy lives mixed in the pool.
Coordination of benefits
When a person is covered by two group plans, the coordination-of-benefits (COB) provision designates a primary and secondary payer so total reimbursement never exceeds 100% of the eligible expense.
A newly hired employee does not enroll in the group health plan during the 31-day eligibility period. What is the typical consequence?