Group vs. Individual Coverage
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Group health plans
Group plans are commonly offered by employers as part of an employee benefits package. They can also be obtained through some trade unions, professional associations, churches, and other organizations. Most Texans with health coverage are in employer-sponsored group plans, through either their own employer or their spouse’s employer. The state and federal laws for group plans are somewhat different depending on the size and nature of the group. Texas law contains special provisions for plans offered by small businesses. For instance, some state-mandated benefits that must be included in plans offered by large employers do not have to be included in small-employer plans.
Employers and groups aren’t required to offer health coverage to their employees and members. Those that do are not required to contribute toward plan premiums. Some carriers, however, may require employers to pay 50 percent or more of an employee’s premiums.
Following is a brief description of the most common types of group health plans:
- Small-employer plans are plans sponsored by businesses with between two and 50 eligible employees. Eligible employees must be full-time employees who usually work at least 30 hours a week. In addition, they may not have health coverage through some other source and must not be seasonal, part-time, or substitute workers. If a small employer offers a plan, it must be made available to all eligible employees equally.
State law sets a 15 percent cap on annual rate increases due to members’ health status for small employer health plans. Also, any carriers who discontinue a small employer plan must automatically accept the group into any other employer plan that they offer, regardless of any enrollment requirements.
- Large-employer or other group plans are offered by businesses that don’t meet the small employer requirements and don’t self-fund, and by other groups, such as a churches, trade unions, and professional associations. If a large employer offers an HMO plan only, the law requires the HMO to offer a point-of-service option.
Large employers may offer coverage to a specific class of employees only – such as executives – and not offer coverage to others. Coverage within a class, however, must be offered to all employees equally, and the employer cannot use the health status of employees as a reason not to offer coverage to a particular group. Employers may never exclude an employee from plan membership for any health-related reason.
- “Self-funded” plans are governed by the federal Employee Retirement Income Security Act (ERISA). They are often called ERISA plans. Employers who self-fund their health plans pay the costs of their employee’s health care themselves, rather than an HMO or insurance company. The law allows self-funded plans to operate in multiple states without having to meet each state’s insurance laws. Self-funded plans are regulated by the U.S. Department of Labor. TDI has very limited authority over self-funded plans.
Most of the health plans offered by very large employers are self-funded. There are only a few federal requirements for self-funded plans, and the benefits included may vary by plan and employer. However, they generally provide comprehensive coverage and may provide more extensive coverage than other plans.
Self-funded plans have their own procedures for complaints and dispute resolution, so it’s important to read your benefits handbook carefully. Unresolved questions and complaints should be directed to the Department of Labor’s Employee Benefits Security Administration (EBSA). For more information, call EBSA
214-767-6831
On occasion, self-funded groups will subcontract certain aspects of the plan to an insurance company or HMO. In this case, the subcontractor is known as a Third-Party Administrator (TPA). TPAs must have a Texas license to do business in the state. TDI has jurisdiction only over complaints against a TPA, not against a self-funded plan’s direct sponsor.
- Multiple Employer Welfare Arrangements (MEWAs) are employer-sponsored plans offered by a group of businesses that have joined together to offer a plan. MEWAs can cut plan costs by spreading risk across a larger pool and reducing administrative overhead. MEWAs can be self-funded, and regulated by the Labor Department, or administered by a Texas-licensed insurer or HMO, and regulated by TDI. Except for the fact that their membership extends across businesses, MEWAs behave like any other self-funded or large employer plan.
If the MEWA retains all or part of the plan’s insurance risk, it must be licensed by TDI. TDI’s regulation of licensed MEWAs focuses primarily on solvency issues. However, MEWAs are required to offer certain mandated benefits. MEWAs do not have to be licensed if an authorized insurance company has assumed 100 percent of the MEWA’s liability.
Your rights in a group plan
Once an employer health plan is issued, a carrier generally may not use the health-related factors of any insureds as a basis for canceling or refusing to renew the plan. The health factors may still be used to determine the plan’s premium rates, however.
A carrier may not “cherry pick” individuals within a group to offer or deny coverage to, nor may a carrier charge different individuals within the group different rates. When deciding whether to cover a group, the carrier must accept or reject the group as a whole.
Large employers establish the criteria to determine employees who are eligible for enrollment. Such criteria may not be based on health factors. A large employer carrier must accept or reject the entire group of individuals who meet the participation criteria established by the employer and who choose coverage.
Carriers must allow new employees to have at least 31 days from their start date to decide to enroll in a plan. Carriers must also offer a 31-day “open enrollment period” each year, during which any existing employees who are not yet covered may join. There are special enrollment periods for certain employees and dependents. For example, a dependent for whom an employee must provide medical child support under a court order may be enrolled before the next annual enrollment period.
Carriers must provide the employer with at least 60 days advance notice before premium increases take effect, and 90 days notice before discontinuing a plan. If a plan is discontinued, the carrier must offer each employer the option to purchase other employer-sponsored health coverage offered by the carrier at the time of discontinuance.
