Health Resorces | Group Consumer Guide


Group Health Insurance: "A Consumer’s Guide"

Employer Group Health Insurance Overview:
Group health insurance coverage is purchased by employers and offered to eligible employees of their respective companies. At times, it is also offered to the employees’ family members as well. This policy is meant to be viewed as a benefit of working for that company. Health insurance group coverage such as this is given to the majority of Americans through their employer and or the employer of a family member. Different Employer Group Health Insurance Policies?

Different types of employers issue different types of policies. The reason behind this is the regulation of insurance at the state level of government. The laws regarding health insurance offered by the different types of employers can significantly vary between states. Laws that concern how coverage is issued are different for large groups and small groups. In addition, the way the premium rates are determined are also different. Americans working at smaller companies (generally 50 employees or less) and those who work for larger companies vary in health insurance needs. Lastly, sole proprietors purchasing health insurance require different coverage that vary on a state-by-state basis.

Coverage requirements for small employer plans?
The insurance industry has what is called a "guaranteed issue”. This federal law stands regardless of pre-existing health conditions that group members may have. Here are a few points this law states:
An insurance company can turn down no small employer, or individual employee, for group coverage.

Each insurance company must renew its small employer health contracts every year unless at least one of the following has occurred:
There is a non-payment of premium
The employer has committed fraud or intentional misrepresentation
The employer has not complied with the terms of the health insurance contract


In the majority of U.S. states, health insurance companies that provide policies for smaller employers are permitted to look back at the medical histories for the pre-existing conditions of individual group applicants. For this waiting period, companies may not consider any information further back than the previous six-month interval. However, individual states do carry the right to reduce these time periods. Employees also hold the right to receive credit for prior coverage against any of the previously stated waiting period. This credit is contingent upon whether the employee had other health insurance within the application waiting period.

For more information about your state’s coverage requirements regarding group health plans for small employers,
please see NAHU’s Health Care Coverage Options Database:

How to you Determine Premium Rates for Small Group employers?
Using a process known as underwriting, more than 70% of the states in the U.S. allow small group health insurance companies to determine their initial premium rates. The remainder states make small group health insurance companies to use other different types of community ratings to determine their respective initial rates.

When applying for health coverage, employees are usually asked to provide health information about themselves as well as the additional family members the plan will cover. They are to supply this information typically when small group plans are medically underwritten. Utilizing this medical information supplied on the applications, small group plans can then determine the rates, also retaining the option of requesting additional information and clarification from physicians and or the individual applicant.

In order to accurately determine the risk of a particular applicant, the company must be able to gain access to the applicant’s information if necessary. If information necessary to gauge the amount of an initial rate, it will underwrite more conservatively relative to the missing information. This will most likely have a negative effect on the applicant.

Example: A person has a history of high blood pressure but it is controlled with medication and he is not overweight. If the company is unable to determine if that individual smokes or if he has normal cholesterol, it will assume that the missing information is negative and rate accordingly.

It also important to understand the idea of a "rating band requirement” when purchasing health coverage. Although the specifics vary by state most states underwrite based on general factors. A company, by state law, is permitted to vary a group’s premium rates based on medical factors; in addition, they are limited to a certain percentage of the average small group insurance rate.

Example: In a state with a rating band requirement of plus or minus 25%, a small group rate could vary no more than 25% above or below the average small group rate for that geographic area. So if the average premium was $100, a small employer's rate could be anywhere from $75-125, based on the overall health status of all of the group members.

Community rating, as an alternate to medical underwriting, requires group insurers to charge all individuals the same premium, regardless of age or health status, as long as they reside in the same geographical area.

Example: One employer's cost to insure a healthy 27-year-old non-smoking male with no health conditions would be the same cost another employer in the area would pay to insure a 55-year-old male smoker who is suffering from prostate cancer and a heart condition.

Slightly different than community rating, some states prefer to use "Modified Community Rating” With this type of rating, community rates of health plans vary based on factors such as age, gender, or whether or not the individual smokes. State laws for Modified Community Rating vary greatly, and some even allow for a limited amount of adjustment factors.

Example: In a state that allows modified community rating with a variation for age, an employer would pay more to insure the 55-year-old male smoker with cancer and a heart condition. However, the insurer would have to use the same rate when calculating premiums for the healthy 27-year-old male as it would for a male employee of a different company who is the same age but suffers from juvenile diabetes.

Renewal rates of small employer group plans also include accounting for the increase of costs of providing health insurance coverage by the company. An example of this could be changes in any state laws that may impact operating costs of a company. As you may know, the industry calls these costs "trends”. Renewal rates for small employer groups are often capped by the state at certain percentage increased by trend. The plan participants’ history as well as the claims history of the company’s overall small employer group pool are also factored in to any and all annual premium changes for small employer group plans.

For information on how small group health insurance plans are rated in your state,
please see NAHU’s Health Care Coverage Options Database:

Knowing coverage Requirements For Large Employer Groups
Unlike small group health insurance contracts, large group health insurance contracts do not have to be offered on the basis of guaranteed issue. Therefore, based on its claims history, a health insurance company could reject an entire large employer group. However, once an individual is eligible for benefits through their medical history, he or she cannot be excluded from large group coverage. In summary, if a large employer is issued a policy from a company, than all eligible employees are issued coverage.

Large group contracts as well as all group insurance contracts are mandates by federal law to be renewed every year at the discretion of an employer. The only exception would be if there is a non-payment of premium, which means the employer has committed fraud or intentional misrepresentation. In addition, the employer has not complied with the terms of the health insurance contract. Health insurance companies are also required by law to give employees credit against any period without coverage prior of eligibility. This includes any pre-existing conditions and prior health coverage within 63 days of obtaining their group coverage from a large employer.

NAHU's Health Care Coverage Options Database
can provide you with specific information about large group insurance plan requirements in your state.

How Large Employer Groups Determine Their Premium Rates
Large group health insurance is medically underwritten at the time of purchase. Rates are based on prior claims experience as well as employee participation. Unlike small group insurance, employees are not generally asked to fill out a medical questionnaire prior to obtaining coverage. Annual premium changes by a health insurance company are based primarily on the claims experience of the groups in past years. They also factor in any overall increases in the cost of providing health insurance coverage. Such costs include changes in laws that may affect operating expenses.

Regulating Employer Group Health Insurance Plans Many employers provide its employees benefits within the employer contracts with a health insurance company. It is also common for employer-based health insurance plans to be fully insured by a health insurance company. These contracts also pay premiums for coverage and even assume all claims risk. The states regulate fully insured group plans. To illustrate the larger group health plans, they usually consist of several hundred employees or larger. Such employee group may choose between two group benefit plans. They can either full or partially self-insure their group benefit plans. Essentially, the employer does not pay health insurance premiums to a company. The employer sets a pool of funds in reserve and assumes its own risk for health benefits claims.

Self-insured companies usually buy a Stop-loss insurance policy. This policy is created to protect themselves against losses above a certain threshold. It also contracts with either a third party of health plan to administer benefits and handle claims. Employees of self insured coverage may not even realize the plan is self funded by their employer. Note: Self funded plans are regulated federally by the Department of Labor under the Employee Retirement Income Security Act of 1974 (ERISA). These plans are also known as ERISA plans. At this point you may be uncertain whether you are:
Covered by a plan that is fully insured and state regulated or
Covered by a plan that is self funded and federally regulated
If this is the case, ask your employer!

Note: Contact information for the state and federal regulators of group health insurance coverage can be obtained through NAHU's Health Care Coverage Options Database.


Employer Group Health Insurance Available to Sole Proprietors
Another question one may have is whether or not Employer Group Health Insurance is available to sole proprietors. The definitions of small employer groups vary from state to state. Most of the time, companies only require a company to have at least two employees to qualify for group coverage, however, some may have all the way up to 50. Specific and strict requirements for very small employee groups vary by state as well. These varying qualifications are needed to document that a business is, in fact, legitimate as well as retain the appropriate number of eligible employees to prevent fraud.

Some states guarantee what is known as "business groups of one” This allows sole proprietors to purchase group coverage as well as allows them to be treated as their own business entity. They also get to be rated separately by the health insurance companies. Business owners that reside in states that do not allow sole proprietors to purchase group coverage often purchase individual health coverage.

For information about whether or not your state allows for group insurance to be sold to business groups of one,
please see NAHU’s Health Care Coverage Options Database

Rights Guaranteed during loss of access to Employer Group Health Insurance Coverage?
Unfortunately, loosing your group health insurance coverage has happened to millions of people. This could happen for a variety of reasons such as job loss, job change, or even a divorce. Basically, if one becomes eligible for group coverage, and that reason is taken away, at least temporarily, they are still eligible to receive benefits according to the federal Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). However, many states have mandated other continuation-of-coverage options for people who are not covered by COBRA.

Also mandated by federal law, many people can leave group insurance and opt for individual market insurance. This option is known as group-to-individual health insurance portability. For more information about continuation-of-coverage options, visit NAHU's Consumer Guide to Continuation of Coverage Options or theNAHU Health Care Coverage Options Database.


Since requirements for group health insurance policies can vary by state, how do I find out what the requirements are in my state?

Each state's requirements for group insurance is in NAHU's Health Care Coverage Options Database.


The database also contains contact information for the state and federal regulators of group health insurance policies, so that you can contact them with questions or concerns.


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