13.3 Group Health, COBRA, and HIPAA Portability

Characteristics of Group Health Insurance

Group health is purchased by a sponsor (typically an employer) under a single master contract. Individual members receive a certificate of coverage summarizing their benefits - they are not parties to the contract and hold no individual policy.

Key principle: Group insurance is written to prevent adverse selection. The group must form for a reason other than to obtain insurance, and a minimum participation percentage (e.g., 75% contributory, 100% noncontributory) is required so healthy members cannot opt out.

Types of Groups and Enrollment

Eligible groups include single-employer groups, multiple-employer trusts (METs), association groups, labor unions (Taft-Hartley), and creditor-debtor groups.

Enrollment rules limit selection against the insurer:

• Eligibility period - a window (often 31 days) for new hires to enroll without proof of insurability.
• Open enrollment - a recurring period when members may join or change plans.
• Late enrollee - someone who enrolls after the eligibility window may face evidence of insurability or a waiting period.
• Contributory plan - employees pay part of the premium; needs 75% participation.
• Noncontributory plan - employer pays 100%; needs 100% participation.

Worked Example - Participation

An employer with 40 eligible employees offers a contributory plan requiring 75% participation. The minimum enrollees needed = 0.75 x 40 = 30 employees. If only 26 enroll, the insurer can decline to issue or require additional underwriting because the group falls short of the 75% threshold.

COBRA Continuation

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets qualified beneficiaries keep group coverage after a qualifying event. It applies to employers with 20 or more employees.

Key COBRA mechanics:

• The employer/plan has 30 days to notify the plan administrator of an event; the beneficiary has 60 days to elect coverage.
• The beneficiary pays up to 102% of the full premium (the extra 2% is administration), rising to 150% during the 11-month disability extension.

Worked Example - COBRA Premium

If the total group premium (employer + employee share) is $700/month, the COBRA premium is 1.02 x $700 = $714/month. During a disability extension it could reach 1.50 x $700 = $1,050/month.

Trap: Termination for gross misconduct is not a COBRA qualifying event - no continuation is owed.

Who Counts as a Qualified Beneficiary

A qualified beneficiary is someone covered the day before the event - the employee, spouse, or dependent child. Each may elect independently; a spouse can continue even if the former employee declines. Coverage must be identical to the active group plan, including any plan changes the employer later makes for active workers.

If a beneficiary fails to elect within the 60-day window, COBRA rights are lost. Once elected, coverage can be terminated early for nonpayment, the employer ending all group health, or the beneficiary obtaining other group coverage or Medicare.

HIPAA Portability and Nondiscrimination

The Health Insurance Portability and Accountability Act (HIPAA) protects people moving between group plans:

• Portability - guarantees eligible individuals access to group coverage when leaving a prior plan, with guaranteed renewability of group products.
• Pre-existing limits - historically capped exclusions and credited prior creditable coverage to shorten waiting periods.
• ACA overlay - the Affordable Care Act (ACA) later eliminated pre-existing exclusions in compliant major medical entirely.
• Nondiscrimination - a group plan cannot use an individual's health status, claims history, or genetic information to deny eligibility or raise that person's rate.
• Privacy - protects the confidentiality of protected health information (PHI).

Exam tip: COBRA = keep your current plan for a set number of months by paying the full premium. HIPAA = carry your eligibility to a new plan and bar health-status discrimination. Do not swap these two.

COBRA durations and the second qualifying event

COBRA continuation length depends on the qualifying event. Termination or reduction in hours gives 18 months; disability (determined by Social Security within the first 60 days) can extend that to 29 months; and events such as death of the covered employee, divorce, or a dependent aging out give qualified beneficiaries up to 36 months. A second qualifying event during an 18-month period can extend coverage to 36 months total.

COBRA mechanics and the small-employer line

Federal COBRA applies to employers with 20 or more employees. The qualified beneficiary has 60 days to elect and then 45 days to make the first payment, and may be charged up to 102% of the full group premium (the extra 2% is an administrative load). States often impose 'mini-COBRA' rules on smaller employers.

HIPAA guaranteed renewability and special enrollment

HIPAA guarantees renewability of group coverage, bars discrimination based on health status, and grants special enrollment rights after events such as marriage, birth, or loss of other coverage — without waiting for open enrollment.