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Group health insurance and COBRA

Group Health Insurance and COBRA

How a group plan is put together

Group health insurance covers many people under one master contract issued to a single policyholder — most often an employer, but also a labor union, a trust, or an eligible association. The individuals covered are not the contract holders; each insured employee receives a certificate of coverage (sometimes called a certificate of insurance) that summarizes benefits, exclusions, and rights. In Texas, group accident and health coverage sits within the health insurance provisions of the Insurance Code (Tex. Ins. Code Title 8), and the standards for accident and health policy forms and their required provisions come from the accident and health chapter (Tex. Ins. Code ch. 1201).

Underwriting in the group market looks at the group as a whole — its size, industry, claims history, and demographics — rather than at each person's medical history. Because of that, employees enrolling when first eligible typically do not have to prove individual insurability. Plans control adverse selection instead through structural rules:

  • an eligibility definition (for example, full-time employees working a stated number of hours);
  • a waiting or probationary period before a new hire may enroll;
  • an initial enrollment period, after which a late enrollee may face restrictions or must wait for open enrollment;
  • participation requirements — a noncontributory plan is paid entirely by the employer and usually requires 100 percent of eligible employees, while a contributory plan splits the cost and requires a stated percentage to participate.

Dependent coverage — spouse and children — is normally offered as an extension of the employee's certificate, and the employer, as policyholder, handles enrollment, payroll deduction, and premium remittance.

Why continuation coverage exists

Group coverage is tied to employment or membership, so it ends when that connection ends: termination, a cut in hours below the eligibility threshold, retirement, divorce from the covered employee, or a child reaching the plan's limiting age. Continuation and conversion rights are the bridge that keeps those people from becoming instantly uninsured.

COBRA — the federal Consolidated Omnibus Budget Reconciliation Act — generally applies to group health plans of employers with 20 or more employees and lets qualified beneficiaries (the covered employee, spouse, and dependent children) keep the same group coverage temporarily at their own expense. Texas law also provides state continuation and conversion rights inside the health insurance title for situations COBRA does not reach, such as smaller employer groups and coverage remaining after federal continuation is exhausted (Tex. Ins. Code Title 8).

A top-to-bottom flowchart titled Group Coverage to COBRA Continuation. At the top, a blue box reads: group plan, master contract, employees hold certificates. An arrow leads down to an orange box: a qualifying event occurs. An arrow leads down to a gray box that lists the administrative steps: the plan notifies qualified beneficiaries of their rights, the beneficiary has sixty days to elect and about forty-five days to pay the first premium, and the cost may be up to one hundred two percent of the group premium. From that box, a single line splits into three arrows pointing to three green outcome boxes side by side. The left box says eighteen months, for termination of employment that is not for gross misconduct, or a reduction of hours. The middle box says twenty-nine months, which is the eighteen-month period extended for a disabled qualified beneficiary, where cost may rise to one hundred fifty percent. The right box says thirty-six months, for death of the covered employee, divorce or legal separation, a child losing dependent status, or Medicare entitlement. A footer bar across the bottom states that continuation ends early for nonpayment of premium, if the employer drops all group health plans, or if other coverage begins.
From master contract to qualifying event: COBRA notice and election deadlines and the 18, 29, and 36 month maximum coverage periods.

Qualifying events, deadlines, and cost

The qualifying event determines who may continue and for how long:

  • 18 months — voluntary or involuntary termination of employment (other than for gross misconduct) or reduction of hours.
  • 29 months — the 18-month period extended when a qualified beneficiary is determined to be disabled.
  • 36 months — death of the covered employee, divorce or legal separation, a child ceasing to be a dependent, or the employee becoming entitled to Medicare.

The employer or plan administrator must notify qualified beneficiaries of their rights after a qualifying event, and the beneficiary then has a 60-day election period, with roughly 45 days after electing to make the first premium payment. The plan may charge up to 102 percent of the applicable group premium (up to 150 percent during the disability extension) — the extra amount covers administration. Coverage is identical to what active employees have, including plan changes, but it ends early for nonpayment, if the employer stops offering any group health plan, or if the beneficiary becomes covered elsewhere.

Producer takeaway: at the point of sale, explain that continuation is the same coverage at unsubsidized cost, and make sure the employer understands its notice duties — missed notices, not missed premiums, are the usual source of disputes.

Sample questions

An employer in Texas purchases a group accident and health plan for its workforce. Which statement correctly describes the contractual structure of that arrangement?

  • Each covered employee is issued an individual policy, and the employer merely collects the premium.
  • The insurer issues a separate master contract to every covered family unit.
  • One master contract is issued to the employer as policyholder, and each covered employee receives a certificate of coverage summarizing benefits, exclusions, and rights.
  • No written evidence of coverage is required because the employer holds all the contract rights.
Preview

This is a preview. The full lesson and question set require an active plan.