The Group Insurance Environment

• Chapter 5

Characteristics of Traditional group Insurance

• Group Contract (Master contract), certificate of insurance

• Experience rating

• Group underwriting

Group Underwriting

• minimize adverse selection

• decrease administrative expenses

• reason for existence of group

• stability of group: steady flow of persons

• persistency

Group Underwriting (cont)

• determination of benefits: preclude individual selection– eligibility: probationary periods, exclude part-

timers.

• premium payments: contrib vs non-contrib– participation requirements for contrib, to offset

adverse selection

• firm handles some administrative functions

State regulation

• McCarran-Ferguson Act, 1945

• Groups eligible for group insurance– individual employer groups (firms)– negotiated trusteeships: trucking, construction. Er

cannot pay union directly for insurance benefits, but may pay a trust fund

– trade associations– labor union groups

Federal Regulation

• Age Discrimination in Employment Act– Prohibits discrimination for workers age 40 or older

– Applies only to employers with 20 or more employees

– Group benefits other than medical expense can be reduced for older employees.

• Must be cost justified

• Can be done on benefit-by-benefit basis or benefit-package basis

Effect of ADE on group term life insurance

• Benefits usually not reduced until age 65

• Benefit reductions most commonly done on basis of 5-year brackets. Generally at age 65 a 35 percent reduction can be justified.

Effect of ADE on disability income benefits

• No reductions allowed for uninsured salary continuation plans.

• Short-term benefits--A 20 percent reduction at age 65 can be justified.

• Long-term benefits– level and/or duration can be reduced.

Federal Regulation

• Civil Rights Act– Employers with 15 or more employees– Provisions

• Pregnancy treated like any other medical condition

• Pregnancy benefits can be excluded for dependents, but not employees even if unmarried.

• Abortions can be excluded unless life of woman is endangered.

Federal Regulation• ERISA

– Applies to retirement and welfare benefit plans– Definition of welfare benefit plan

• Includes medical expense, disability and death benefit plans

• Includes vacation benefits, day-care centers, prepaid legal services, etc.• Does not include government plans, church plans, or wc plans or unemployment

laws

• Certain other plans are exempt by regulation.– Overtime and holiday pay

– Compensation for time away from work • if paid out of general assets of employer

– plans under which employer pays nothing, is not the policyowner, and merely collects premium

Federal Regulation• Americans with Disabilities Act

– Applied to employment and other activities that affect the disabled.

– Title I applies to employers with 15 or more employers.– Cannot deny employment as long as job can be performed with or

without "reasonable accommodation."– Disabled persons must be accorded equal access to health insurance

the employer provides.– Certain coverage limitations and pre-existing conditions clauses are

acceptable.– Regulations will be needed to further clarify the effect of the act on

employee benefits.

Federal Nondiscrimination Rules

• They apply to many types of benefit plans, but there is no uniformity.

• Discussed when applicable in later chapters