Q & A - Group Health Insurance

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These questions and answers apply to small groups (2-50 employees) located in Illinois and in Indiana:

Why do group health rates increase year after year?

There are many factors in what seems to be a permanent rise in health insurance costs.  Primary causes include:

• General price inflation for medical services
• The leveraging effect of fixed deductibles and co-payments – Insurance companies must adjust rates above the general inflation rate when total claim cost increase, but the portion paid by the insured person stays the same.
• Cost-shifting – Providers make up for “shortfalls” in government-sponsored program revenue by shifting charges to the private sector.
• Increases in health services utilization due to aging, product promotion and improved diagnostic services
• The availability and use of more expensive treatment and drug therapies
• Government-mandated benefits and other legislative changes
• Technological changes and their effect on the intensity of care
• Fraud

What can an employer do to moderate group health rate increases?

The basic things you can do are:

• Share more of the insurance premium cost with employees.
• Choose medical plan designs that neutralize cost increase components by providing incentives for more cost effective plan usage, while channeling patients to the appropriate provider and treatment options.  HSA-compatible plans are an example.  Other examples are encouraging use of centers of excellence, disease/case management programs and eliminating fixed dollar co-pays.
• Aggressively seek out more competitively-priced insurance companies.
• Individual Health Management – Offer incentives to use preventive care and wellness services.

How many employees are required for group health insurance?

At least two employees have to enroll, but a business still has to meet the insurance company's employee participation requirement.

What percentage of employees have to enroll?

As a general rule, at least 75% of eligible full-time employees must either enroll in the plan or have other group coverage through their spouse.  In addition, at least 50% of all eligible employees must actually enroll.  No participation requirements apply to dependents.

Can part-time employees enroll in a group plan?

Most health insurance companies will insure only full-time employees (30 or more hours per week) under a small group plan.

When can an employee enroll in a group health plan?

New employees can enroll upon completion of the initial probationary period.  Employees who don't enroll at that time must wait for open enrollment (usually the policy anniversary date) or a for a qualifying event.

When can dependents enroll in a group health plan?

An employee's dependents can enroll upon completion of the new hire probationary period.  If dependents are not enrolled at that time, they must wait for open enrollment (usually the policy anniversary date) or a for a qualifying event.

When can a baby be enrolled in the group health plan?

A newborn baby can be added as of the birth date, but it's critically important that the insurance company be notified within 30 days.  Otherwise, the employee may be stuck with the nursery bills and the baby's health insurance will have to wait until open enrollment or a qualifying event.

What is a "qualifying event?"

A qualifying event is an occurrence (such as death, termination of employment, divorce, etc.) that changes an employee's eligibility status under a group health plan.  The term is frequently used in reference to COBRA eligibility, but it can also refer to an event enabling an active employee to make a coverage change at some time other than open enrollment.

How do insurance companies define "full-time" employee?

A full-time employee is generally defined as an employee working 30 or more hours per week.

How much of the cost does the employer have to pay?

As a general rule, the employer must fund at least 50% of the employee health insurance premium.  The employer is not required to fund any portion of the dependent health insurance cost.

How long does it take to obtain group health insurance?

From the time application materials are submitted, expect at least a two or three week wait.  However, it could take longer, depending on how much additional documentation the insurance company requests.   If the application process takes less than two weeks, consider it a pleasant surprise.

It helps if you work with an insurance broker who prepares complete paperwork and anticipates concerns and questions from the insurer’s underwriting department.

What documentation is required by the group health insurers?

A primary concern of the health insurance company is validating that enrolling persons are actually full-time employees.  In Indiana, the insurance company usually requests a copy of the UC-1 report submitted to the Indiana Department of Workforce Development.  In Illinois, you'll typically need to provide a copy of the UI-3/40 form submitted to the State of Illinois Department of Employment Security.

Start-up businesses may not be able to provide these reports.  In such a circumstance, payroll records, check stubs or other employment confirmation documentation may meet the insurance company's requirements.

Will a replacement group health plan apply a pre-existing condition exclusion to employees?

Persons who have satisfied the prior plan's pre-existing condition exclusion should be credited likewise under the new plan.  Persons who have partially satisfied the prior plan's pre-existing condition exclusion should have the same status under the replacement group plan.

If a business is offering group coverage for the first time, will pre-existing condition exclusions be applied?

Unless an employee or dependent has qualifying prior health insurance that has ended no more than 62 days prior to the effective date of the new group plan, that person will have to satisfy the full pre-existing condition exclusion waiting period.

Does group health insurance cost less than individual health insurance?

Usually not.  This is a common misconception.  Individual health insurance is typically less expensive.  However, individual health insurance policies have their disadvantages, such as declined applications, lesser benefits, maternity coverage gaps and tax deductibility issues.

How do health insurer's define "pre-existing condition?"

Each insurance company has its own definition.  However, the following wording is consistent with most health insurance policy provisions:  "A pre-existing condition is a medical condition that would cause a normally prudent person to seek treatment during the twelve months prior to the beginning of coverage."

Do different pre-existing condition exclusion rules apply to pregnancy coverage?

Yes.  Under group plans, pregnancy is NOT subject to a pre-existing condition exclusion.  This is federal law, which extends to new hires and their dependents.

Can a small group health insurance application be rejected?

The law states a group of 2-50 employees cannot be denied group health coverage for medical reasons.  However, a small group application can be rejected if the organization does not meet the insurer's participation and employer contribution requirements.

To what size businesses does COBRA continuation apply?

Though its provisions may be adjusted from year to year, COBRA basically applies to employer groups that averaged 20 or more full-time employees during the previous calendar year.

Can any group of people organize to purchase group health insurance?

No. In the world of small group health insurance, an employee-employer relationship is needed.

Can independent contractors (1099 employees) be insured under a group health plan?

Most health insurance companies will agree to insure a limited number of independent contractors (1099 employees).  These limits vary from insurance company to insurance company.

Can a small business reduce group health insurance cost through bypassing an agent and dealing directly with the insurance company?

No.  Small group (2-50 employees) rates are strictly regulated by the state.  In addition, group health insurance companies in Indiana and in Illinois are not organized to sell directly to small employers.

For how long am I committed to keep a group health insurance plan?

Though group health rates are set for twelve-month periods, the group can terminate coverage anytime during the policy year.  If you want to switch to another group insurance company, you don't have to wait until your policy anniversary.

Can commonly owned businesses by insured under the same plan?

In general, small group health insurers resist this -- particularly if the businesses have different federal tax ID numbers.  However, if the businesses can be categorized as a controlled group of corporations under IRS section 414, you can combine them under a single small group policy.

If a group offers Health Savings Account (HSA) plans, must all employees enroll in the high-deductible HSA-compatible plan?

No.  Many group health insurers have "combo" plans, providing employees a choice of traditional PPO or HSA-compatible coverage.   These plans are available for groups with as few as two employees.