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Group vs. Individual Coverage

Another factor that will determine the shape of your health plan is whether you buy it as an individual or as a member of a group. Group plans are commonly offered by employers as part of an employee benefits package, but can also be obtained through some trade unions, professional associations, churches, and other organizations.

Group Health Plans

Most Texans with health coverage are in employer-sponsored group plans, through either their own employer or their spouse's employer. The state and federal laws for group plans are somewhat different depending on the size and nature of the group. Texas law contains special provisions and protections for plans offered by small businesses. For instance, some state-mandated benefits that must be covered in plans offered by large employers do not have to be covered in small-employer plans.

Finally, there is a special set of federal laws for "self-funded" health plans. These are plans sponsored by groups with the financial ability to bear the costs and risks of coverage themselves, without having to use an insurance company or HMO. Self-funded plans are regulated by the U.S. Department of Labor. TDI has very limited authority over self-funded plans.

Employers and groups are not required to offer health coverage to their employees and members, and those that do are not required to contribute toward plan premiums. Some carriers, however, may require employers to pay 50 percent or more of an employee's premiums.

Following is a brief description of the most common types of group health plans:

• Small-employer are plans sponsored by businesses with between two and 50 eligible employees. Eligible employees must be full-time employees who usually work at least 30 hours a week. In addition, they may not have health coverage through some other source and must not be seasonal, part-time, or substitute workers. If a small employer offers a plan, it must be made available to all eligible employees equally.
  
  State law sets a 15 percent cap on annual rate increases due to members' health status for small employer health plans. Also, any carriers who discontinue a small employer plan must automatically accept the group into any other employer plan that they offer, regardless of any enrollment requirements.
  
• Large-employer or other group are offered by businesses that don't meet the small employer requirements and do not self-fund, and by other groups, such as a churches, trade unions, and professional associations. If a large employer offers an HMO plan only, the law requires the HMO to offer a POS option.
  
  Large employers may offer coverage to a specific class of employees only - such as executives - and not offer coverage to others. Coverage within a class, however, must be offered to all employees equally, and the employer cannot use the health status of employees as a reason not to offer coverage to a particular group. Employers may never exclude an employee from plan membership for any health-related reason.
  
• Self-funded are governed by the federal Employee Retirement Income Security Act (ERISA) and are therefore often called ERISA plans. Employers and organizations with the ability to self-fund do so to save on administrative costs. Also, the law allows self-funded plans to operate in multiple states without having to meet each stateýs insurance laws. TDI has very limited jurisdiction over self-funded plans.
  
  Most of the health plans offered by very large employers are self-funded. There are only a few federal requirements for self-funded plans, and the benefits included may vary by plan and employer. However, they generally provide comprehensive coverage and may provide more extensive coverage than other plans.
  
  Self-funded plans have their own procedures for complaints and dispute resolution, so it is important to read your benefits handbook carefully. Unresolved questions and complaints should be directed to the Department of Labor's Employee Benefits Security Administration (EBSA). For more information, call EBSA  214-767-6831
  
  On occasion, self-funded groups will subcontract certain aspects of the plan to an insurance company or HMO. In this case, the subcontractor is known as a Third-Party Administrator (TPA). TPAs must have a Texas license to do business in the state. TDI has jurisdiction only over complaints against a TPA, not against a self-funded planýs direct sponsor.
  
• Multiple Employer Welfare Arrangements (MEWAs) are employer-sponsored plans offered by a group of businesses that have joined together to offer a plan. MEWAs can cut plan costs by spreading risk across a larger pool and reducing administrative overhead. MEWAs can be self-funded, and regulated by the Labor Department, or administered by a Texas-licensed insurer or HMO, and regulated by TDI. Except for the fact that their membership extends across businesses, MEWAs behave like any other self-funded or large employer plan.
  
  If the MEWA retains all or part of the planýs insurance risk, it must be licensed by TDI. TDI's regulation of licensed MEWAs focuses primarily on solvency issues. However, MEWAs are required to offer certain mandated benefits. MEWAs do not have to be licensed if an authorized insurance company has assumed 100 percent of the MEWA's liability.

Your rights in a group plan

Once an employer health plan is issued, a carrier generally may not use the health-related factors of any insureds as a basis for canceling or refusing to renew the plan. The health factors may still be used to determine the planýs premium rates, however.

A carrier may not "cherry pick" individuals within a group to offer or deny coverage to, nor may a carrier charge different individuals within the group different rates. When deciding whether to cover a group, the carrier must accept or reject the group as a whole.

Large employers establish the criteria to determine employees who are eligible for enrollment. Such criteria may not be based on health factors. A large employer carrier must accept or reject the entire group of individuals who meet the participation criteria established by the employer and who choose coverage.

Carriers must allow new employees to have at least 31 days from their start date to decide to enroll in a plan. Carriers must also offer a 31-day "open enrollment period" each year, during which any existing employees who are not yet covered may join. There are special enrollment periods for certain employees and dependents. For example, a dependent for whom an employee must provide medical child support under a court order may be enrolled before the next annual enrollment period.

Carriers must provide the employer with at least 60 days advance notice before premium increases take effect, and 90 days notice before discontinuing a plan. If a plan is discontinued, the carrier must offer each employer the option to purchase other employer-sponsored health coverage offered by the carrier at the time of discontinuance.

Individual Health Plans

Insurance companies and HMOs sometimes sell coverage directly to individuals, in much the same way that auto insurance is sold. These policies can cover the purchasing individual only or include a spouse and dependents. Individual plans can be a good option if you are self-employed or work for a company that does not offer a health plan.

In general, individual plans cost more, and may cover fewer conditions, than employer-sponsored plans or other group plans. Group plans achieve lower rates by spreading the risk of claims over a greater number of people. Add the fact that employers often contribute 50 percent or more toward workers' plan costs, and the price of individual coverage can seem even more expensive.

Many of the mandated benefits are contained in an individual policy. However, the carrier may offer riders that modify, expand, or restrict an individual policy.

The following are common types of health care coverage you usually can buy as an individual:

• HMO plans - Managed care plans offered by HMOs that pay for covered health services as long as you use your particular HMOs network of providers or receive preauthorization for obtaining care outside the network.
  
• Major medical policies - Policies that cover hospital stays and physician services in and out of the hospital. Major medical policies also may be offered as PPO plans.
  
• Hospital surgical policies - Policies that cover only expenses directly related to hospital and surgical services, such as daily room, surgery, and doctor charges.
  
• Hospital indemnity policies - Policies that pay up to a fixed amount for each day you are in the hospital.
  
• Specified or dread disease policies - Policies that only cover specific illnesses detailed in the policy, such as cancer or AIDS. This coverage also may be offered as a rider to extend the other types of individual coverage.
  
• Short term policies - Policies that only last for a specified length of time, not to exceed 12 months. Short-term policies are most often purchased as a "fill-the-gap" measure by people who lose coverage for some reason but expect to gain it back.

Carriers have the right to evaluate your medical history and other health factors when deciding to offer individual plans. The carrier may deny your application based on health factors, or only offer a plan with an "exclusionary rider" eliminating benefits for certain conditions.

Note: As a rule, it is better to buy one comprehensive HMO or major medical policy. If you need more coverage, these plans often allow you to add benefits. The other types of individual plans may cost less, but they usually provide fewer benefits or may duplicate coverage that you already have.

Covering dependents

If a plan covers dependents, such as children and grandchildren, they are eligible for dependent health care coverage until the age of 25. State law requires plans to provide comparable coverage for a dependent if the enrolled parent is required to provide medical child support under a court order. The plan may not require the child to live within the service are or to live with the parent.

Children with mental or physical disabilities who cannot financially support themselves may be covered indefinitely. The plan may require evidence of disability.

Policies that include maternity coverage, and those that allow dependent coverage, must also provide automatic coverage for any newborn child for the first 31 days. After this period, you must notify your carrier if you wish to continue coverage for the child.

Large-employer plans also must provide coverage for certain dependent students over the age of 25. However, except for emergency care and authorized referrals, an HMO plan can require dependent students to return to the plan's service area to receive health care services.

If two spouses are covered by separate health plans, and both plans cover their dependents, the "birthday rule" takes effect. This means the plan of the parent who has the earlier birthday in the calendar year pays first. For example, the plan of a parent whose birthday is July 3 would pay for a child's health care before the plan of the other parent born on July 4. However, if the first parent's plan reaches its benefits maximum, the second plan can take effect. In the event of a divorce, a court usually determines which parent's plan is a dependent's primary coverage.