13.5 Employer Group Underwriting Process

Most health insurance coverage today is issued on a group basis. Unlike individual underwriting, group underwriting covers all eligible members regardless of health status, age, or gender. Group plans are not permitted to discriminate in favor of executives or highly compensated employees. Instead, the group is treated as a single risk unit, and the underwriter evaluates and rates the group as a whole to guard against adverse selection.

Experience vs. Community Rating

Insurers may determine premiums using either experience rating or community rating. Experience rating bases premiums on a specific group’s past claims history, using that data to estimate future costs. In contrast, community rating sets premiums based on the overall claims experience of a broader population within a defined geographic area, rather than on the experience of an individual group.

For multi-state groups, premiums are influenced by the state where most employees are located and where the policyholder’s principal office is based. Evidence of insurability is typically not required, as insurers can adjust premiums annually based on the group’s claims experience. Additional factors affecting cost include the group’s average age, gender distribution, and overall size.

Plan Design Factors

The insurer may require that a specified minimum percentage of eligible members enroll in the plan to reduce the risk of adverse selection. These minimum participation requirements typically include:

• Contributory plans require both the employer and employees to share in the premium cost, and typically require at least 75% participation among eligible employees.
• Noncontributory plans are fully funded by the employer, and generally require 100% participation of all eligible employees.
• Persistency is an important underwriting consideration for group health plans. It refers to the likelihood that a plan will be maintained over time without lapsing due to nonpayment or being replaced. Insurers aim to achieve a high level of persistency to ensure stability and long-term viability of the plan.

Administrative Capability: Group health plans assume many administrative responsibilities for the sponsor, including processing enrollments, maintaining records, and adding new members. Because these functions are often managed electronically, administrative costs for group plans are generally lower than those for individual policies.

---

Quiz

1. What is a key characteristic of group underwriting compared to individual underwriting?

A. Requires medical exams for all members

B. Covers only executives

C. Covers all eligible members regardless of health status

D. Requires evidence of insurability for each employee

Correct Answer: C

Rationale: Group underwriting includes all eligible members without regard to individual health status, age, or gender.

2. What is the primary basis for determining premiums under experience rating?

A. Geographic region

B. Individual employee income

C. Past claims history of the group

D. Employer size only

Correct Answer: C

Rationale: Experience rating uses a group’s past claims experience to estimate future costs.

3. Which type of plan requires 100% participation of eligible employees?

A. Contributory plan

B. Noncontributory plan

C. Community-rated plan

D. Experience-rated plan

Correct Answer: B

Rationale: Noncontributory plans are fully employer-paid and require all eligible employees to participate.

4. What is the purpose of minimum participation requirements in group plans?

A. To increase administrative costs

B. To reduce adverse selection

C. To limit employer contributions

D. To increase employee turnover

Correct Answer: B

Rationale: Minimum participation helps prevent adverse selection by ensuring a balanced risk pool.

5. What does “persistency” refer to in group health insurance?

A. The number of claims filed annually

B. The ability to increase premiums

C. The likelihood that a plan remains in force over time

D. The size of the employee group

Correct Answer: C

Rationale: Persistency measures how well a plan is maintained without lapsing or being replaced.