How is a group health plan different from an individual plan??
A group plan is exactly that. It is a plan that covers a group of specified individuals.
Who decides who makes up the group of individuals?
The insurance company will have a definition of an “eligible employee”. It varies from company to company, but “20 hours per week on a regular basis” is a typical definition. Anyone that falls into that category would be considered eligible.
How can group plans offer better coverage, lower premiums, and less medical requirements than an equivalent personal policy?
The risk is spread out within the group of individuals, the insurance company “takes the good with the bad”; therefore someone that may not qualify for an individual prescription drug plan because they have pre-existing conditions, will qualify for a group plan where medical history is not a factor.
What about financial maximums?
On an individual health plan; often the annual financial maximum for drugs or dental work is quite low. The reason is, as an individual, anyone purchasing a plan is doing so because they know they will use it. This is called “anti-selection”. Because of the nature of the product; the people most interested in purchasing it, are the ones who need it the most. This “anti-selection” translates into a higher claim rate on individual plans and therefore higher premiums; and in many cases financial limits.
If that is the case, why doesn’t everyone sign up for a group plan??
In order to sign up for a group plan, you have to be a member of a group. For example, sole-proprietors are somewhat limited as to what is available to them in the group insurance market. Many join larger business associations such as the Chamber of Commerce in order to participate in the association’s group plan.
Are there any other reasons a group plan may not work?
Another challenge faced by a group plans, is the lack of flexibility. The insurer is only willing to offer better coverage and better rates if everyone that belongs to the defined group is willing to participate. For example if you have an office with 10 people in it, but only 5 want to participate, a group plan won’t work. The group concept is based on “taking the good with the bad” and spreading out the risk. For that reason, most providers require at least 75% participation. On smaller groups of 5 or less, the insurer typically requires 100% participation.
What if different individuals want different benefits?
This is a common challenge. If some members of the group only want basic dental, and some want major dental, a group plan won’t work. All members of the group need to find a happy medium that works well for everyone. Compromise is the key.
What if a member of the group is already covered by a spouse’s plan? It seems unfair to MAKE them participate if they are already covered?
Spousal opt outs are allowed for health and dental benefits, provided the individual is covered under a spouse’s plan.
What about claims history? With car or house insurance, my rates are based partly on claims history. Do group plans track claims history?
Some do and some don’t. Often small groups are “pooled”. This may mean a 5-person group with a lot of sick individuals with high claims is not penalized based on their experience as an individual group. Their claims experience is “pooled” with hundreds of small groups across the country and an average is taken for all the groups in the pool. This average claims experience is then used to set the rate for all the groups in the pool.
So…what if we are the 5-person group that is made up of healthy people??? Are we subsidizing other groups in the pool?
Yes, the concept of pooling spreads risk, some years you may be the group that has high claims, other years you may have fewer claims. The idea is to keep everyone’s premiums steady from year to year.
What if we are in a bad pool?
Just like a public swimming pools, some pools are nicer and cleaner than others. A broker can guide you to an insurer that may offer a pool that works best for your company.
Are there “un-pooled” plans?
Yes, some companies offer plans where premiums are based solely on the experience of your group. This can either reward you for low claims, or can heavily penalize you for high claims. With smaller groups this can be particularly challenging if 1 or 2 people in the group have an expensive medical condition. The premiums quickly spiral out of control and the group plan becomes unsustainable. 50 and 60 percent annual increases are not uncommon in this type of situation.
If we use a Broker can we shop around if we have bad claims experience?
Yes, a broker will shop around to several companies for you, but keep in mind, if you were in an “un-pooled” plan where your experience was tracked; your broker will have to submit that experience to any new company you apply to. Your claims experience is like you’re driving record, or credit report; the cleaner it is, the better deal you will get.
What about pre-existing medical conditions?
This is where group plans differ from individual plans. Individual plans ask health questions up front, and in the case of pre-existing medical conditions, they either don’t offer coverage, or they offer some coverage, but exclude any claims that arise from the pre-existing condition. These exclusions then form a permanent part of the policy. For example; an individual that takes blood pressure and cholesterol pills, may find that they are excluded on an individual plan, whereas, on a group plan, those same pills are covered.
What’s the catch?
The catch is, in order to avoid exclusions on your group health plan; the group has to be large enough. Typically, 3 or more lives in a group can avoid exclusions on health care expenses.
What about exclusions for Disability or Critical Illnesses?
Disability and Critical illness components of a group plan typically have a standard pre-existing condition clause that is similar throughout the industry. Basically, any condition that was treated or investigated within a specified period of years or months prior to joining the group plan is not covered for a specified period of time after joining the plan. Depending on the condition, it ranges from 3 months to 2 years.
What are the advantages to having Valley Life Insurance Solutions as our broker for our health plan?
- We are local. Many group plans are set up by an advisor that travels a large territory. After the plan is in place, the maintenance and questions are handled at a national call centre 3 time zones away. Valley Life offers the option of dealing with someone in person, face to face, and local.
- We are a broker and we have access to several different companies. We do the shopping for you, saving you time, and even if you change insurance companies, you still deal with the same local advisor year after year.
- We offer support for your administrator. Many small to medium sized businesses don’t have a dedicated person to handle the ongoing management of their employee health plan. Our office handles insurance every day, all day. Let us find the right form you need to fill out.
- We answer employee questions. When employees have questions about the plan, and they will; just give them our local number and we can answer them. Nobody wants to sit on hold or deal with an automated call center. Keeping your employees happy is a high priority for us.
- We have over 10 years experience providing Vancouver Island businesses with employee health plans. We are looking forward to another 10 or 20 years.
Need more help? Just ask.
*Disclaimer: The above information is designed to provide a general understanding of group health and dental plans. Every policy is different and it is important to carefully review your insurance contracts with a licensed advisor*