Lecture 6 The Group Insurance Environment Cost Advantage of Group Insurance Characteristics of Traditional Group Insurance State Regulation Federal Regulation

Cost Advantage of Group Insurance Lower Commissions Lower Administrative Costs More Efficient Underwriting Reduces Adverse Selection

Characteristics of Traditional Group Insurance Group Contract –Master contract –Certificates of insurance Experience Rating –Large employers: cost plus –Small employers: cost sharing Group Underwriting –Purpose To minimize adverse selection To reduce administrative costs

Group Underwriting Considerations Reason for existence Stability Persistency Determination of benefits Determination of eligibility Premium payments –Contributory vs. noncontributory Administration Prior experience Size Composition Industry Geographic location

State Regulation History –States regulated and taxed insurance –Paul v. Virginia –South Eastern Underwriters Association –McCarran-Ferguson Act Eligible groups –Fictitious group statutes –Individual employer groups –Negotiated trusteeships (Taft-Hartley Trusts) –Trade associations –Labor union groups –Multiple-Employer Welfare Arrangements Fully insured multiple-employer trusts (METs) Insured, third-party-administered MEWAs Self-funded MEWAs

State Regulation - (cont.) Contractual provisions in group insurance –Grace period –Conversion –Incontestability –Benefit types Well baby care Substance abuse Infertility treatment –Effect of ERISA (1974) Benefit limitations State premium taxes –Apply to insurance companies –Does not apply to HMOs and some Blue Cross- Blue Shield plans Regulatory jurisdiction

Federal Regulation Age Discrimination in Employment Act Civil Rights Act Americans with Disabilities Act

Age Discrimination in Employment Age Discrimination in Employment Act –Protected ages Amendment to ADEA –Increased protected age to 70 Amendment to ADEA –Eliminated upper age limit Rationale for legislation Impact on employers Impact on society Effect of employee benefits –Adjustments based on cost Group term life Group disability income Group medical expense benefits –Prior to 1983 Medicare could be primary –After 1983 Employer plan is primary

Civil Rights Act 1978 Amendment a.k.a. Pregnancy Discrimination Act Pregnancy to be treated the same as other disabilities Pregnancy related conditions treated the same as other medical conditions, including pre-existing conditions provisions Similar treatment in dependent coverage Extended medical benefits after termination must treat pregnancy similar to other ailments Medical expenses for abortions can be excluded, but must treat complications

Americans with Disabilities Act Designed to protect from discrimination a “qualified” job applicant or employee who has the necessary education and skills to perform the “essential functions” of a job with or without “reasonable accommodation”

ADA - (cont.) Cannot discriminate against any individual –With physical or mental impairment that substantially limits one or more major life activities –With a record of such impairment –Who is regarded as having such an impairment (e.g. disfigurement) Reasonable accommodation –Modification or adjustment of workplace to enable disabled person to perform essential job functions Restructuring job Adopting flexible schedule Modifying equipment Hiring readers, interpreters, travel attendants

ADA - (cont.) Problem that led to ADA –45 million Americans with disabilities –Unemployment rate approximately 67% –Forecast - by 2010, 1 in 2 will be disabled Aging baby boomers Medical advances Problems resulting from ADA –Litigation –Confusion and uncertainty –Specific cases: Operating room nurse with epilepsy Teacher with tuberculosis - not contagious while on medication Job fairs in inaccessible locations Union contracts reserving light duty jobs for senior employees