Group Health Plan

A group health plan is a plan established or maintained by an employer, an employee organization such as a union, or both, that provides medical care to employees and their dependents. Section 733(a)(1) of ERISA defines it as "an employee welfare benefit plan to the extent that the plan provides medical care ... to employees or their dependents (as defined under the terms of the plan) directly or through insurance, reimbursement, or otherwise," and the Public Health Service Act carries the same definition at 42 U.S.C. 300gg-91(a).

Most people call this employer-sponsored health insurance, and the everyday phrase and the legal one usually describe the same coverage card. The legal term turns on who sponsors the plan, not on whether an insurance company carries the risk, so it reaches a self-funded plan, in which the employer pays claims itself and hires an insurer or administrator only to process them, as well as an insured one. Federal law keeps a narrower phrase, "group health insurance coverage," for the insured kind alone. That is why federal rules about COBRA, enrollment rights and Medicare coordination are written in terms of the group health plan.

Insured and self-funded are the same plan to an employee and different plans to the law. In an insured plan the employer buys a group policy from a health insurance issuer, and the federal statute calls that "group health insurance coverage," meaning health insurance coverage offered in connection with a group health plan. In a self-funded plan there is no policy: the plan itself bears the claims. The difference matters because state insurance law regulates insurance, and ERISA's preemption clause stops a covered employee benefit plan from being treated as an insurance company. The practical result is that state benefit mandates and state insurance-department complaint processes reach an insured plan and generally do not reach a self-funded one, whose rules are federal. The plan's summary plan description, or the plan administrator, will say which kind it is.

What counts. The definition is functional: any arrangement that pays for medical care for employees or dependents is a group health plan unless a statute takes it out. A health reimbursement arrangement is one; federal regulations call it "a type of account-based group health plan." The statute takes out one arrangement by name: the definition "shall not include any qualified small employer health reimbursement arrangement," which is why a QSEHRA escapes the market rules that would otherwise forbid an employer from simply reimbursing individual premiums.

What sits mostly outside. A separate list of "excepted benefits" removes some coverage from the federal group health plan requirements. Some are outside in any form, such as coverage only for accident or disability income, workers' compensation and credit-only insurance. Others are outside only when offered separately or as independent, noncoordinated benefits, such as limited-scope dental or vision, long-term care, specified-disease coverage and hospital indemnity insurance. An employee assistance program can qualify too, if it meets the conditions in the regulations.

Why the label matters to a reader. Because the federal protections attach to the plan, the label answers practical questions. COBRA continuation coverage is a right against a group health plan. Special enrollment periods let a person join a group health plan mid-year after losing other coverage or gaining a dependent. The federal ban on pre-existing condition exclusions binds "a group health plan and a health insurance issuer offering group or individual health insurance coverage." And Medicare's secondary payer rules decide whether the group health plan or Medicare pays first, which turns on employer size and on whether the coverage comes from current employment.

One word, more than one definition. The Internal Revenue Code uses the same phrase in different sections with definitions of their own. The Medicare secondary payer excise tax in section 5000, for example, defines a group health plan as a plan "(including a self-insured plan) of, or contributed to by, an employer" that provides health care to employees, former employees and others. So whether a given arrangement is a group health plan is always a question asked "for purposes of" a particular rule.

1. The employer (or union) sets up the plan and decides who is eligible, what the plan covers and how much employees contribute.
2. It decides how to fund it. It either buys a group policy from an insurer, which then carries the claims, or pays claims from its own funds, usually with a third-party administrator, and often buys insurance of its own against very large claims.
3. Employees enroll at their first opportunity, during the plan's annual open enrollment, or in a special enrollment period after a qualifying event such as losing other coverage or having a child.
4. Federal rules follow the plan. The plan must offer COBRA continuation where COBRA applies, may not impose pre-existing condition exclusions, and coordinates with Medicare under the secondary payer rules.

For example: Theo works for a company large enough to be covered by COBRA. His employer plan costs $720 a month in total for his coverage, of which the employer pays $540 and Theo pays $180 through payroll. When he leaves the job, COBRA lets him keep the same group health plan, but the plan may charge up to 102% of its full cost: $720 x 1.02 = $734.40 a month, more than four times the $180 he was paying as an employee.

Pros

• The employer may pay part or most of the cost, which an individual buying coverage alone pays in full.
• Federal protections travel with the plan: no pre-existing condition exclusions, special enrollment rights and, where it applies, COBRA.
• No one in the plan may be charged more than a similarly situated colleague because of a health factor, wellness-program incentives aside.

Cons

• The employer chooses the plan design, the network and the insurer or administrator, so employees get the options offered and no others.
• Coverage is tied to the job. Leaving it means COBRA at the full cost, a spouse's plan or a Marketplace plan.
• A self-funded plan sits largely outside state insurance law, so a state benefit mandate or a state complaint process may not help with it.