CFP

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Group Medical Insurance - Types and Basic Provisions

Group health insurance is available to employers, credit unions, trade and professional associations and labor unions. Evidence of coverage is through a master contract with the group as the policy owner without individual underwriting or the need to provide evidence of insurability.

Traditional Indemnity Plans
These arrangements reimburse the patient for cost of treatment for a sickness or injury.

Group Basic Medical Expense - hospital, surgical and physician's expenses.

Group Major Medical - these arrangements are offered as a comprehensive major medical plan or alongside of a group plan. This latter set-up is termed a supplemental major medical plan. Both types of plans have a deductible requirement. Group arrangements have higher benefit ceilings and lower premiums.

Two other features are unique to group major medical:

  • Coordination of Benefits Provision (COB) - unique to group health plans, COB seeks to avoid duplication of benefit payments and where an individual is covered under more than one plan. Total claims covering the patient may not exceed total allowable medical expenses. The provision establishes which plan is primary. Once this plan has paid out the full amount, the insured may submit a claim to the secondary provider for any remainder benefits payable.
  • Maternity Benefits - may not be excluded, unlike with individual health plans.

Managed Care Plans - these plans operate as service providers, offering benefits to subscribers who pay a premium. The service organization (the managed care plan) pays the care provider directly with whom it has into an agreement to furnish medical care.

  • Health Maintenance Organization (HMO) - a type of managed care organization that offers comprehensive health care services in exchange for the members' premiums. These are many, ranging from hospital care to doctor's appointments. HMOs stress preventive care. There are two basic variants on the HMO.

    - Open-Panel: the subscriber has access to a physician network. These doctors work from their own private offices.
    - Closed-Panel: physicians who are salaried employees of the HMO offer services and work out of the HMO's facilities.
  • Preferred Provider Organization (PPO) - a collection of health care providers (doctors, hospitals, clinics) offer services to certain groups at pre-set prices. The group refers its members to the PPO providers for health care. As distinct from an HMO, a PPO operates on a fee-for-service basis, rather than on a prepaid basis. Providers to the PPO are in private practice and have pre-negotiated their fees with the group that elects to use the PPO.
  • Point-of-Service (POS) - a point-of-service plan combines features of both a health maintenance organization and a preferred provider organization. Participants need to designate a primary care physician (PCP) within their network, but may go outside of the network for services, with the latter costing much more.


Income Tax Implication
Employers may deduct group health care premiums. Individuals do not include employer contributions as income.

Individuals may deduct unreimbursed medical expenses to the extent that they exceed 7.5% of adjusted gross income. Individual contributions to a group medical plan are considered a qualifying medical expense.

COBRA and HIPAA Provisions
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