Most Popular Ways to Organize a Group Health Plan
Most Popular Ways to Organize a Group Health Plan
If you own or operate a small business and are in the process of considering group health insurance and how to go about it, read on; this article is for you.
Group Health Insurance for Small Business
The types of groups eligible for group insurance coverage have broadened significantly over the years. This wider eligibility is reflected in both regulations and the underwriting philosophy of group writing insurers. Group insurance is permitted today for types of groups that did not exist in the early days of its development, and it is written on some types of groups whose applications would not have even been given consideration when the product was first introduced. Within the United States, the National Association of Insurance Commissioners (NAIC) Model Group Insurance Bill permits coverage on four specific categories of groups. Many states permit coverage on additional types of groups not identified in the NAIC model bill.
Employees of a Single Employer
The employees of a single employer comprise the first category mentioned in the NAIC model bill. An employer may be a sole proprietorship, a partnership, or a corporation. Also, employees may include not only the immediate employees of the employer, but several other categories as well. The single-employer group is by far the dominant type of group that is provided group insurance coverage.
Debtor-Creditor Groups
Group credit insurance (life and disability income) has grown rapidly in the United States, reflecting a credit-oriented society. The contract owner in these plans is the creditor, such as a bank, a small loan company, a credit union, or any business that has significant accounts receivable, including those that rely heavily on credit card customers. If the debtor dies or becomes disabled, the insurance proceeds are generally paid to the creditor to liquidate the indebtedness that provided the basis for the coverage rather than to the individuals who are insured or their beneficiaries. Debtors usually must be under a binding, irrevocable obligation to repay the indebtedness for coverage to be affected.
Labor Union Groups
Members of labor unions may be covered under a group contract issued to the union itself. The insurance must be for the benefit of persons other than the union or its officials. Generally, the entire premium may not be paid directly by member contributions. It is common, however, for payments to be made from funds partially contributed to the union by members specifically for their insurance and partially by the union from its own funds. In some cases, the union pays the total premium from its own funds. Group contracts often are written on multiemployer groups and issued to the trustees of a fund created through collective bargaining processes. This arrangement is typically established by two or more employers in the same or related industry, by one or more labor unions, or even jointly by employers and labor unions. The Taft-Hartley Act prohibits U.S. employers from turning over funds for employee welfare plans directly to a union- hence, the need for a separate trust and its trustees to serve as the group contract owner and decision maker.
Multiple-Employer Trust
Multiple Employer Trust (METs) a subset of multiple employer welfare arrangements (MEWAs) market group benefits to employers that have a small number of employees. METs may be sponsored by life insurance companies, independent administrators, or two or more employers in the same industry. The sponsor designs the plan, selects the employers (or other groups) permitted to participate, and usually handles the administration. Most trustees function in a passive role and are used mainly as the nominal group policyholder for insurance held by or on behalf of a MET. All financial transactions flow through and are accounted for by the trust. The member employers pay premiums to the sponsoring organization, which uses the money to purchase a group contract. The entire group of employers is experienced rated, thereby permitting greater credibility to be given the groups own experience.
Self insured METs assume the responsibility of making claim payments through a third party administrator. They should assess adequate premiums (contributions) and maintain proper reserves. In the early development of METs, this was not always done properly. METs have proven to be a source of regulatory confusion, enforcement problems, and even fraud. A U.S. General Accounting Office (GAO) report showed that from January 1988 to June 1991, METs left some 398,000 participants and their beneficiaries with some $129 million in unpaid claims and many other participants without insurance. More than 600 METs failed to comply with state insurance laws, and some violated criminal statutes.
The GAO report confirmed that state efforts to regulate METs, enforce state laws, and recoever unpaid claims were hindered because the states could not identify METs operating within their jurisdictions. Furthermore, when complaints did come to the attention of state regulators, they were frequently frustrated because METs asserted that they were exempt under the Employee Retirement Income Security Act (ERISA). As a result, in 1992 the U.S. Congress enacted legislation that requires self Insured METs to meet state insurance regulations concerning the adequacies of contributions and reserve levels. There has been a significant reduction in the number of self funded METs since the legislation was adopted.
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