Group Health Plans
Most Americans get health insurance through their jobs or are covered because a family member
has insurance at work. This is called group insurance. Group insurance is generally the least
expensive kind. In many cases, the employer pays part or all of the cost.
Some employers offer only one health insurance plan. Some offer a choice of plans: a fee-for-service plan, a health maintenance organization (HMO), or a preferred provider organization (PPO), for example.
With group health insurance, a single policy covers the medical expenses of many different people, instead of covering just one person. Unlike individual insurance, where each person's risk potential is evaluated to determine insurability, all eligible people can be covered by a group policy, regardless of age or physical condition. The premium for group insurance is calculated based on the characteristics of the group as a whole, such as average age and degree of occupational hazard.
Because the insurance company is spreading it's risk over the characteristics of a group of people, the overall risk is decreased and insurance premiums are thus cheaper for members. This works just like a stock portfolio investing a variety of asset classes to achieve diversification.
How do you get group health insurance?
- Find out whether you are eligible: Many employers offer group health insurance as part of their employee benefits package. Other groups that may offer insurance coverage include churches, clubs, trade associations, chambers of commerce, and special-interest groups.
- Apply for coverage: Although your individual health is generally not evaluated when you apply for group health insurance, you must apply during the specified eligibility period. For employer-sponsored health insurance, this is often the first 30 days of your employment, or the first 30 days following your initial probationary period. For associational insurance, this may be the first 30 days of your membership in the group.
If you fail to enroll during this period, the insurance company has the right to treat you as though you were applying for individual insurance. This means you will probably have to answer extensive health questions, and go through a physical examination. The insurance company can then decide whether or not to insure you.
The purpose of the eligibility period is to reduce insurance costs by preventing people from waiting until after they discover a health problem to sign up for coverage. Both employers and associations may also have an open enrollment period each year, during which you may sign up for coverage, modify your existing coverage, or add dependents to your coverage.
What are the benefits of group coverage?
- You don't need a physical exam. Under a group health insurance arrangement, the insurance company agrees to insure all members of the group, regardless of current physical condition or health history. The only condition is that the group members must apply for insurance within the specified eligibility period. Clearly, this is better for those with chronic health conditions, who might be unable to get individual insurance.
- It's cheaper than individual insurance. Because only one policy is issued for the entire group, the initial cost of establishing group coverage is lower than the cost of issuing a separate policy to each person. Also, group insurance is somewhat less risky for insurers than individual insurance, since the risk is spread out among a larger number of people. Within a fairly large group, it is almost certain that the good insurance risks will equal or exceed the bad insurance risks. Since group insurance costs less for the insurance companies to establish and administer, it generally costs less to purchase.
- You might get a break on premiums. In many cases, your employer or association will pick up some or all of the group insurance premium. This can make group insurance even more affordable.
What are the drawbacks to group coverage?
You can't customize your policy. In a group insurance situation, the provisions of the policy are negotiated between the insurer and master policyowner (usually an employer or association). You may not have the freedom to have provisions included or excluded, and your deductible amount and co-payment percentage are determined in advance. In some situations, however, you may be able to choose between two or more insurance plans.