A: The major difference between group and individual insurance involves evidence of insurability. To purchase individual insurance, a person must generally answer a health questionnaire and undergo a medical examination to provide evidence of insurability to the insurance company. an insurer may decline coverage on the basis of the applicant's personal habits, health, medical history, age, income or any other factors that bear on risk acceptance. Or the insurer may issue a policy with limitations on coverage.

Most group insurance, however, is issued without medical examination or other evidence of individual insurability because the insurer knows that it can cover enough individuals to balance those in poor health against those in good health. The risk of an insurer failing to achieve this balance is diminished as the size of the group increases, or as the insurer underwrites additional group policies and increases the total number of individuals covered. This is known as the "law of large numbers."

2. What are the various ways that individuals receive health insurance protection?

A: Besides participating in group insurance plans, individuals may also be covered under federal and state government-sponsored programs such as Medicare and Medicaid, service-type plans such as Blue Cross/Blue Shield or so-called alternative health care systems such as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Insurance may also be purchased privately on an individual basis, or through mass purchasing groups such as credit unions and professional or trade associations.

3. What are the advantages of group insurance over individual insurance?

A: For an employer that intends to provide insurance protection to its employees, the group approach ensures that all employees, regardless of health, can be covered. THose with known health problems, who might otherwise be unable to obtain individual insurance, can be covered automatically upon employment without evidence of insurability. Although some limits may be imposed on new hires for certain conditions that predate their enrollment in the plan, most employees can receive coverage as soon as they are eligible.

Group insurance offers a lower cost per unit of protection than individual insurance, because the economies of scale resulting from selling, installing and servicing one plan covering many individuals. In addition, group plans are typically more flexible and tend to provide more liberal benefits than individual coverage

4. What types of group protection do most employers provide?

A: Although there are many variations of each, the four major types of insurance coverage provided by employers to their employees are life, accidental death and dismemberment (A D & D), disability and health or medical. Some employers also provide additional coverages, including group legal, travel accident and vision and dental care.

5. How can a labor union provide group insurance?

A: A labor union can provide group insurance for its members under a policy issued to the union. The union is the policyholder, just as the trust is the policyholder under a MET. A union may purchase a group policy for a large number of members who are employed by the same company, or for union members working for different companies. Group insurance purchased through a union is particularly advantageous in industries such as construction, where union members may work for many employers during a year.

Despite the opportunity for labor unions to purchase group insurance, few group contracts are issued to unions today. Organized labor more often obtains insurance benefits for its members through collective bargaining with employers. As a result, union members are usually covered under group insurance plans sponsored by one or more employers.

6. What is an HMO?

A: A health maintenance organization (HMP) is an organization that provides comprehensive health care to a voluntarily enrolled population at a predetermined price. Members pay fixed, periodic fees directly to the HMO and in return receive health care services as often as needed.

7. What is a PPO?

A: A preferred provider organization (PPO) is an association that contracts with a group of doctors, dentists, hospitals or other health care service providers to provide care at prearranged rates or discounts.

8. Can an employer work directly with an insurance company?

A: It is possible for an employer to deal directly with an insurer through a group sales representative to purchase group insurance. Premium rates and underwriting practices vary considerably from one insurer to another, however. In addition, the coverages provided are rarely identical. This means that comparison shopping is often beyond the capability of all but the most sophisticated purchases, for example, the very large company that has sufficient internal employee benefits expertise to do so. For this reason, many gorup insurance purchasers do not deal directly with insurance company underwriters or group insurance representatives, preferring instead to deal with an intermediary.

Smaller employers need a qualified professional to act as intermediary because they lack the resources and expertise to handle their group insurance needs. An intermediary can help them define their needs and objectives, design a plan to meet those criteria, select the proper purchasing and funding vehicle, obtain competitive quotes from insurers and service the plan.

9. What is a risk?

A: The risk an insurance company assumes when it agrees to cover a particular group is the possibility that claims will exceed the expected level. It is the chance of financial loss inherent in the group. Insurance companies use it to determine whether they will underwrite an insurance policy on a particular group.

The spread of risk is necessary no only because of the expected variations in a population's health but also because some policyholders -- particulary very small groups -- purchase group insurance to cover certain individuals with known health problems. This is a more costly way to obtain coverage for those high-risk individuals, but often the only way possible, given the evidence-of-insurability requirement for individual policies.

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