Beginner's Guide to Small Group Health Insurance
Small group health insurance is essentially an overarching insurance policy that covers a smaller sized group, such as the employees of a small business. It is common practice for people to secure health insurance benefits through their employer because group health insurance, whether large or small tends to be much more cost effective than pursuing independent insurance. All group plans are not created equal. Health insurance is regulated at the state level, and small group insurance is regulated differently than large group insurance. Small groups are generally considered to be those companies with less than 50 employees, while large groups are considered any company with more than 50 employees.
According to federal law, no health insurance company may decline an individual member of a small group coverage plan based on a pre-existing condition. In industry parlance, this is known as “guarantee issue.” Additionally, within certain boundaries, barring any type of fraud, or misrepresentation, or breach of insurance contract on the part of the small business, insurance companies are required to renew insurance contract annually at the discretion of the employer.
Some of these rules do vary from state to state. In many states, insurance companies are allowed to impose a exclusionary, or pre-existing condition waiting period. What this means is that in the case of a pre-existing condition, they cannot deny coverage completely, but they may be allotted a specific period of time before which they are required to cover individuals with pre-existing conditions. Often insurance companies are allowed a window of no more than six months to look back for pre-existing conditions, and they are not allowed to exclude individuals with pre-existing conditions from coverage for more than one year.
In the majority of states in the U.S. insurance premiums for small group insurance are determined by a process called medical underwriting. What this process looks like is the insurance company inquires as to the medical histories of company employees and their families. Employees provide as much information as possible. The insurance company then assesses the information given, sometimes asking for further information from physicians or the employees themselves. In the case that the insurance company cannot assess a given risk, due to lack of information, they assume the risk to be a negative one. This is called underwriting. In many states there is a percentage requirement as to how far the insurance premiums can stray based on medical underwriting. For example, if the percentage imposed is 25%, then the company cannot go 25% over or under the average group rate for the area in question.
In states where medical underwriting is not practiced, the alternative is called community rating. Community rating is a much more generalized approach. This process requires insurance companies to charge all people in a given geographic location the same rate, regardless of age or health status. This approach is practiced on the assumption that costs of higher risk individual will balance out with lower risk individuals.
With annual insurance renewals for a given company, premiums are subject to change based on claims history of individuals, as well as overall changes in the claims history of the group insured as a whole. Changes in premiums may also reflect changes in industry trends in the overall cost of providing healthcare.
While small group insurance is considered to be generally less than 50 employees, it is also considered to be at least 2 employees. What this means is that individuals who own their own businesses in a sole proprietorship situation are not usually eligible for group health insurance plans, despite the fact that they are considered to be small businesses. The industry term for such a situation is a “business group of one.” Again, this issue changes from state to state. In certain states sole proprietorships are eligible for the same benefits as any other small business, assuming they can provide adequate proof that they own and operate a legitimate business. In other states, however, sole proprietors are required to purchase individual health insurance coverage, which can prove to be quite expensive.
In the event of divorce, job loss, or job change, people are generally able to extend their benefits for a given period of time until they are able to secure another means of coverage. This is referred to as the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). However COBRA does not necessarily cover every employment situation, and many states have mandated other options for people who are not covered.
