By David Lack
Question:
How does association group coverage differ from employer group coverage? Are they subject to the same rules?
Robin
Answer:
Health insurance coverage available through an association is a sort of hybrid commodity that is part group insurance, part individual insurance. It acts a little like group insurance and a little like individual insurance — and perhaps more one than the other depending on the market in which it is sold. If you are self-employed or work for an employer that does not offer health insurance as a benefit, association coverage may be the right option for you.
The term “employer group coverage” is just that — insurance coverage offered to employees by an employer. Association coverage is insurance offered to members of a certain association. Associations come in different varieties. Most professions and trades have associations. Some associations are formed for the benefit of people with particular interests; these are known as affinity groups. The self-employed, small businesses, religious organizations and the like all have associations.
Many of these associations offer health insurance as one optional benefit of membership. This is an important point, since many state laws forbid the organization of an association for the sole purpose of offering health insurance. (As a practical matter, however, many associations are formed just for this purpose, a fact disguised by the other activities and benefits of the organization.) Members of the organization may participate in the health plan, and often find that the premium is lower, more like a group insurance rate. So a basic definition of association coverage is group-like insurance sold to individuals.
This is complicated by the fact that some small employers may join associations in order to gain access to the health plan it offers. This is done to save money, as small employers can become part of a larger group and take advantage of lower rates. As a rule of thumb, the larger the group, the lower the premium. That is why an individual and a small employer might want to join an association.
Much of the current definitions of group, association and individual coverage were determined in 1996 by a sweeping health insurance reform law known as the Health Insurance Portability and Accountability Act (HIPAA). Employer group insurance falls into two main categories — small-group, defined as two to 50 employees, and large-group, anything over 50 employees. Generally speaking, large-group insurance has always been guaranteed issue. That is, all employees are assured participation in the plan. HIPAA extended that guarantee to members of small groups as well. Now when a small employer applies for coverage, the insurance company must cover everyone in the group regardless of health status.
The same law includes a definition of a “bona fide association,” imposing certain similar requirements on health plans offered by the associations. The following definition is an excerpt from HIPAA:
“BONA FIDE ASSOCIATION — The term `bona fide association’ means, with respect to health insurance coverage offered in a State, an association which –
- has been actively in existence for at least 5 years;
- has been formed and maintained in good faith for purposes other than obtaining insurance;
- does not condition membership in the association on any health status-related factor relating to an individual (including an employee of an employer or a dependent of an employee);
- makes health insurance coverage offered through the association available to all members regardless of any health status-related factor relating to such members (or individuals eligible for coverage through a member);
- does not make health insurance coverage offered through the association available other than in connection with a member of the association; and
- meets such additional requirements as may be imposed under State law.”
Not all associations are “bona fide.” This doesn’t meant they aren’t valid, but it does mean that they don’t have to comply with all the points of this definition, such as guaranteed issue of insurance for all applicants.
Association coverage is often a valuable option for an individual or a self-employed person, because of the potentially lower rates. But beware, because not all association coverage is created equal. Some plans offer lower premiums by reducing the benefit package. So if you are considering association coverage, make sure that the benefits meet your needs and your level of comfort with the out-of-pocket requirements, network restrictions, and other provisions.
- yourtotalhealth.com -