Group Health Insurance

This week, we will take another look at the options available for both Group and Individual Private Health insurance.?As I noted last week, group insurance health plans provide coverage to a company’s employees or members of an organization.?Group health members usually receive insurance at a reduced cost because the insurer’s risk is spread across the group.

One of the benefits of working in a full-time job is the security of belonging to group insurance plans.?These plans, which can only be sponsored by registered EMPLOYERS, provide coverage for health insurance, life insurance, and contributions by you and your employer towards your pension.

Medical Underwriting

A major benefit of group plans is the ability of the employee to join and be covered without taking a medical exam, provided her enrolment documents are submitted to the Insurer within 30 days of being eligible to join the plan.?This is a huge benefit particularly for employees who already suffer from some illness or ailment when they join the plan.?Under group plans therefore, notwithstanding pre-existing conditions, which may be excluded for the first year of coverage, the employee will still be included in the health insurance plan.

However, if this employee was applying for individual health insurance, she would have to be medically underwritten, which means she could be asked to complete multiple medical tests, depending on the results.?This could translate into much higher premiums to cover the risks of pre-existing medical conditions.?Alternatively, if the insurer assesses these pre-existing conditions as too risky to be included, then the individual may not qualify for health coverage.?Please remember that premiums on group plans are usually lower because the risk, as mentioned above, is spread across the pool of employees in the plan.

Limitations of Group Plans

However, while the cost of group coverage may be lower, employees have no say in the choice of the provider.?They must accept the health insurance plan from whichever insurance company their employer selects, which may not always meet their personal requirements or that of their covered dependents.

Individual health plans allow the buyer to “shop around” for benefits and premiums that match her budget and family health history, insurer experience, etc.?In this case, the individual is not tied to the insurer or plan selected by her employer.?

An employee in Company A for instance, covered under her employer’s group health plan, may be subject to a schedule of benefits that does not adequately cover the actual costs incurred in obtaining health treatment.?In such a case, the employee is much better off having an individual health plan to supplement the group health plan. ?This allows her to claim first against her group plan, and then secondly against her individual plan to receive much closer to full reimbursement of the health costs actually incurred.

Group plans—Costs to Participate

The cost of participating in most group plans in Trinidad & Tobago is shared between the employer and employee, at a contribution rate decided by each employer.?However, in many instances multinationals and larger entities cover 100% of their employees’ monthly health premium payments.?Regardless of whether the employer pays in full or in part for employees to be members of its health plan, most local group plans have either a 10% or 20% coinsurance, which is the amount an insured must pay against a claim after the deductible is paid by the insured.?The deductible is the annual amount insured individuals pay out of their pocket for covered health care services, BEFORE the insurance coverage kicks in.

For example, under the terms of a 20% coinsurance plan, the insured handles 20% of medical costs, while the insurer pays the remaining 80%.?However, these terms only apply after the insured has reached the out-of-pocket deductible amount.?Also, most health insurance policies include an out-of-pocket maximum that limits the total amount the insured pays for care in a given period.?Plans with low monthly premiums usually have higher coinsurance and deductibles and plans with higher monthly premiums usually have lower coinsurance and deductibles.

Let’s look at an example:

Assume you have a 20% coinsurance health policy with a $1,000 out-of-pocket deductible, and a $5,000 out-of-pocket maximum.?Unfortunately, you require minor surgery early in the year that costs $15,000.?Since this is your first claim for the year, you must pay the first $1,000.?After meeting your $1,000 deductible, you are then only responsible for 20% of the remaining $14,000, which is $2,800. Your insurance company will cover 80%, the remaining balance, i.e., $11,200.

If you need another medical procedure later in the year, your coinsurance provision takes effect immediately because you have previously met your annual deductible.?Also, given the out-of-pocket maximum, since you have already paid a total of $3,800 out-of-pocket during the policy term, the maximum amount that you will be required to pay for services for the rest of the year is $1,200.?After you reach the out-of-pocket maximum, your insurance company is responsible for paying up to the maximum benefit allowable per procedure under a given policy.

It should be noted that, with Individual plans, the participant must pay 100% of the monthly premium, in addition to his deductible and co-insurance amounts.

Coverage for Dependents

Most Group health plans offer coverage for an employee’s dependents.?This is usually priced by the insurer based on the number of dependents.?Whether the employee’s full cost of coverage—inclusive of dependent coverage—is paid in full or part by the employer, is up to each employer.?At the end of the day, the cost to the employee to add dependents to his group health plan is significantly reduced, and in some cases even taken up in full, by the employer.?Under individual health plans however, 100% of the costs to cover dependents falls on the individual.

Group Coverage Ends at Retirement

The main benefit of a group health plan is the significantly lower monthly premiums borne by the individual.?However, its biggest downside is that coverage usually ceases with employment.?Therefore, when an employee retires at age 60 or 65, when health complications due to age or otherwise are more likely to set in, the retiree is left having to foot all her health care costs.?Furthermore, getting individual health care coverage at age 60 or 65 is an expensive proposition due to age and the fact that pre-existing conditions are more likely to be evident.

It is for this reason that it is strongly recommended that an employee covered under a group plan also obtain individual health insurance when she is younger and likely to be healthier and charged a smaller premium.?This premium will be payable in slightly higher tiered tranches as she ages, even after retirement, despite any illnesses she may contract vs. a much higher premium which will be charged if she now seeks to obtain individual health insurance after retirement.

Cheers, Nigel

Nigel Romano, Partner, Moore Trinidad & Tobago, Chartered Accountants