Most working-age people get their health coverage through a group plan at work, so understanding how groups are structured is essential exam material and everyday agent knowledge. Group insurance spreads risk across many people, which lowers cost and loosens underwriting compared with individual policies. This guide covers how groups qualify, who pays, what happens when coverage ends, and the rating and document mechanics that make group plans tick.

What makes a "group"

Group insurance covers many people under a single contract. To prevent adverse selection (only sick people signing up), the law and insurers require that a group exist for a reason other than obtaining insurance.

• Eligible groups include employers (single-employer and multiple-employer), labor unions, trade associations, and similar organizations.
• The group must usually meet a minimum size, have a defined purpose, and enroll members based on objective conditions (full-time status, length of service).
• A common eligibility filter is the probationary period (a wait after hire before coverage can begin) followed by an eligibility/enrollment period during which the new employee can sign up.

Contributory vs. noncontributory

Who pays the premium drives the participation requirement — the percentage of eligible members who must enroll.

• Noncontributory: the employer pays 100% of the premium. Because employees pay nothing, 100% of eligible employees must be covered. This minimizes adverse selection.
• Contributory: employees share in the premium cost. A high percentage (commonly around 75%) of eligible employees must participate.

The participation rules exist to keep the risk pool healthy: if only the people expecting big claims enroll, the plan becomes unsustainable.

The master policy and the certificate

Group coverage uses a two-document structure that the exam tests often.

• The master policy (master contract) is the single, full contract issued to the group sponsor (usually the employer), who is the policyowner.
• Each covered member receives a certificate of coverage (certificate of insurance) — a summary of benefits and rights. The member is not the policyowner; they hold a certificate, not the policy itself.

This is why an employee who leaves the group can lose the master-policy coverage but may have continuation or conversion rights (below).

Continuation under COBRA

The Consolidated Omnibus Budget Reconciliation Act (COBRA) lets employees and dependents continue group health coverage after a qualifying event that would otherwise end it.

• Applies to employers with 20 or more employees.
• Qualifying events include voluntary or involuntary termination (except for gross misconduct), reduction in hours, divorce or legal separation, death of the covered employee, a child aging out of dependent status, and the employee becoming eligible for Medicare.
• Continuation typically lasts 18 months for termination/reduced hours, and up to 36 months for certain dependent events (divorce, death, loss of dependent status).
• The former employee pays the full premium plus up to a 2% administrative charge — they keep the same coverage, but now pay the full cost themselves.

Conversion

A conversion privilege lets a person whose group coverage ends convert to an individual policy without proving insurability (no new medical underwriting).

• It must usually be exercised within a short window (often 31 days) after group coverage ends.
• The individual policy may have different (often more limited) benefits and a higher premium than the group plan.
• Conversion is useful when COBRA runs out or doesn't apply; the key benefit is guaranteed issue despite health status.

Coordination of benefits (COB)

When someone is covered by more than one group plan (for example, their own plan and a spouse's), coordination of benefits prevents the person from collecting more than 100% of the actual expenses.

• One plan is primary (pays first as if no other coverage existed); the other is secondary (pays the remaining eligible costs up to its limits).
• A common tie-breaker for dependent children is the birthday rule: the plan of the parent whose birthday falls earlier in the calendar year is primary.
• For an active employee, their own employer's plan is primary over a spouse's plan that covers them as a dependent.

Experience rating vs. community rating

How the insurer sets the group's premium falls into two approaches.

• Experience rating: the premium is based on the group's own claims history. Groups with healthy, low-claim members get lower rates; high-claim groups pay more. Larger groups are typically experience-rated.
• Community rating: everyone in a geographic area or class pays the same base rate regardless of an individual group's claims. This spreads risk broadly and is common for small groups and certain regulated markets.

Key terms at a glance

Common exam traps

• Contributory vs. noncontributory participation. Noncontributory (employer pays all) requires 100% participation; contributory requires a high percentage (often ~75%).
• Master policy vs. certificate. The employer holds the master policy; employees get certificates and are not policyowners.
• COBRA durations. Generally 18 months for termination/reduced hours, up to 36 months for dependent-related events.
• Who pays under COBRA. The individual pays the full premium plus up to 2% — not the discounted employee rate.
• Conversion = no underwriting. The whole point is guaranteed issue; expect different benefits and a higher premium.
• COB birthday rule. It's based on whose birthday is earlier in the year, not who is older.

Quick recap

• Group coverage requires a legitimate group that exists for reasons beyond buying insurance, with participation rules to curb adverse selection.
• Noncontributory plans (employer pays all) require 100% participation; contributory plans require a high percentage (~75%).
• The employer holds the master policy; each member gets a certificate.
• COBRA continues coverage after qualifying events (18 or 36 months) at the full premium plus up to 2%.
• Conversion moves a person to an individual policy with no new underwriting.
• Coordination of benefits caps total payment at 100%; experience rating uses the group's own claims, while community rating charges everyone the same base rate.