Frequently Asked Questions - FAQs
Q: What is the major difference between group and individual insurance?
A: The major difference between group and individual insurance involves evidence of insurability. To purchase individual insurance, a person must generally answer a health questionnaire and undergo a medical examination to provide evidence of insurability to the insurance company. An insurer may decline coverage on the basis of the applicant's personal habits, medical history or any other factors that bear on risk acceptance. Or the insurer may issue a policy with limitations on coverage.
Q: What are the various ways that individuals receive health insurance protection?
A: Besides participating in group insurance plans, individuals may also be covered under federal and state government-sponsored programs such as Medicare and Medicaid, or so-called alternative health care systems such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Insurance may also be purchased privately on an individual basis, or through mass purchasing groups such as credit unions and professional trade associations.
Q: What are the advantages of group insurance over individual insurance?
A: For an employer that intends to provide insurance protection to its employees, the group approach ensures that all employees, regardless of health, can be covered. Those with known health problems, who might otherwise be unable to obtain individual insurance, can be covered automatically upon employment without evidence of insurability. Some limitations may be imposed on new hires for certain conditions that predate their enrollment in the plan.
Group insurance offers a lower cost per unit of protection than individual insurance, because the economies of scale resulting from selling, installing and servicing one plan covering many individuals.
Q: What types of group protection do most employers provide?
A: Although there are many variations of each, the four major types of insurance coverage provided by employers to their employees are life, accidental death and dismemberment (A D & D), disability and health or medical.
Q: What is an HMO?
A: A health maintenance organization (HMO) is an organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price. Members pay fixed, periodic fees directly to the HMO and in return receive health care services as often as needed.
Q: What is a PPO?
A: A preferred provider organization (PPO) is an association that contracts with a group of doctors, dentists, hospitals or other health care service providers to provide care at prearranged rates or discounts.
Q: Can an employer work directly with an insurance company?
A: It is possible for an employer to deal directly with an insurer through a group sales representative to purchase group insurance. Premium rates and underwriting practices vary considerably from one insurer to another, however. In addition, the coverages provided are rarely identical. This means that comparison-shopping is often beyond the capability of all but the most sophisticated purchasers -- for example, the very large company that has sufficient internal employee benefits expertise to do so. Most group insurance purchasers do not deal directly with insurance company underwriters or group insurance representatives, preferring instead to deal with a local agent.
Q: What is a risk?
A: The risk an insurance company assumes when it agrees to cover a particular group is the possibility that claims will exceed the expected level. It is the chance of financial loss inherent in the group. Insurance companies use it to determine whether they will underwrite an insurance policy on a particular group.
Q: Who is an eligible employee?
A: An eligible employee is an employee who meets the plan's definition of an eligible participant. Definitions of eligible employee vary widely from employer to employer, though they may be influenced by legal considerations and company structure.
Q: Are employers required by federal law to purchase group insurance for their employees?
A: Presently, no federal law requires employers to provide their employees with group insurance. There have been initiatives in Congress, however, that would require employers to provide specified minimum levels of health benefits, and there is every likelihood that some form of national standard will be legislated in the next few years.
Q: What is a mandate benefit?
A: A mandate benefit is a specific coverage that an insurer is required to include in its contract under state law. For example, most states require that coverage for substance-abuse treatment be provided. Other kinds of coverages that are mandated in some states include coverage for newborn children, mental disorders and hospice care.
Q: What are the minimum and maximum number of employees allowed by state law to participate in a group health insurance plan?
A: Most states require that an employer enroll a minimum number of employees (generally ten, though fewer in some states) for coverage in order to purchase and maintain a group health insurance plan. This minimum size requirement reduces the potential for adverse selection. There is no legal limit to the number of employees that may be covered under a group health insurance plan.
Q: What types of services are generally covered by a group health insurance plan?
A: Base plus and comprehensive plans vary by insurer, but generally cover the same kinds of services. These include:
- Professional services of doctors of medicine and osteopathy and other recognized medical practitioners
- Hospital charges for semiprivate room and board and other necessary services and supplies
- Surgical charges
- Services of registered nurses and, in some cases, licensed practical nurses
- Home health care
- Anesthetics and their administration
- X-rays and other diagnostic laboratory procedures
- X-ray or radium treatment
- Oxygen and other gases and their administration
- Blood transfusions, including the cost of blood when charged
- Drugs and medicines requiring a prescription
- Ambulance services
- Mechanical medical equipment required for therapeutic use
- Artificial limbs and other prosthetic appliances, except replacement of such appliances
- Casts, splints, trusses, braces and crutches
Q: What is a deductible?
A: It is a specific dollar amount that an individual must pay (or "satisfy") before reimbursement for expenses begins. The higher the deductible, the lower the cost of the health insurance plan.
Q: What is coinsurance?
A: Coinsurance is a feature found in most group health insurance plans. It sets forth the percentage of covered expenses that the employees and health insurance plan will pay. The most common coinsurance level is one in which the employee pays 20 percent of the expenses and the insurer pays 80 percent. This is called 80 percent coinsurance.
Q: What is a covered expense and are there limits?
A: A covered expense is an eligible expense under a group health insurance plan. A covered expense is an expense incurred by a covered individual that will be reimbursed in whole or in part under the group health insurance plan. For example, under most health insurance plans, doctor visits are a covered expense. That is, a doctor's fee up to the amount provided by the plan will be reimbursed by the insurer.
Just because an expense is covered does not mean that the coverage is unlimited.
Q: Are all prescription drugs covered under health care plans?
A: Generally, only prescription drugs that are for treatment of an illness or injury are covered, subject to applicable deductibles and coinsurance. Many plans do not cover contraceptive prescription drugs, for example, or nicotine chewing gum prescribed for smokers who are trying to quit.
Q: Are there different types of drug plans?
A: There are a number of variations, but the principal types of prescription medication plans are open panel, closed panel, mail order and prescription.
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