Large Group Plans

 What are the coverage requirements for large employer groups?

Large group health insurance contracts are offered on a guaranteed-issue basis, so a health insurance company cannot reject a large employer group based on its claims history. No individual employee who is eligible for benefits can be excluded from large group coverage based on medical history. Federal law mandates all group insurance contracts, including large group contracts, be renewed every year at the employer’s discretion, unless there is non-payment of premium, the employer has committed fraud or intentional misrepresentation, or the employer has not complied with the terms of the health insurance contract.

How are premium rates determined for large employer groups?

Large group health insurance is medically underwritten at the time of purchase, with rates based on employee participation and prior claims experience, if available. In a large group employment situation, employees are not generally asked to fill out a medical questionnaire prior to obtaining coverage. The employees may be asked some limited medical questions depending on the employer size and whether the employer has a record of claims experience. The health insurance company bases annual premium changes for large employer groups primarily on the claims experience of the group in past years, as well as any overall increases in the cost of providing health insurance coverage. An example of such costs would be changes in laws that may impact operating expenses.

Who regulates employer group health insurance plans?

Many employer-based health insurance plans are fully insured by a health insurance company. This means the employer contracts with a health insurance company to provide its employees benefits, pays premiums for such coverage, and the insurance company assumes all claims risk. The states regulate fully insured group plans. Implementation of the ACA gives the federal government more authority over larger group health insurance plans than has previously been the case. ACA governs provisions ranging from employee waiting periods before coverage begins to the types of preventive services that a plan must offer.

Self-Funded Plans

However, larger group health plans (usually several hundred employees or larger) may choose to partially self-insure their group benefit plans. This is also called self-funding. This means that instead of paying health insurance premiums to a company, the employer sets a pool of funds in reserve and assumes the risk for health benefit claims. Companies that self-insure generally buy what is known as a stop-loss insurance policy to protect the employer’s assets against losses above a certain threshold. They also contract with either a third-party administrator or a health plan to administer benefits and handle claims.

Many employees of companies that self-fund coverage do not even realize that their plan is self-funded by their employer. Self-funded – and in fact, all employer-provided health benefit plans – are regulated federally by the Department of Labor under the Employee Retirement Income Security Act of 1974 (ERISA), so they are sometimes known as ERISA plans. If employees are uncertain whether they are covered by a fully insured (and state-regulated) plan or a self-funded (and federally regulated) plan, they should ask their employer.

A self-funded plan does not have to meet all of the insurance laws and requirements imposed by a state. If a state mandates coverage for a medical service or treatment, e.g., in vitro fertilization, a self-funded plan providing coverage to employees in that state would not have to provide the in vitro fertilization coverage.