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Group Insurance and AD&D

Master policies and certificates, participation requirements, METs, self-funding, conversion, experience rating, and AD&D principal and capital sums.

Study questions and answers

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1. In group insurance, the master policy is issued to the ____, and each covered member receives a ____.

  1. Employee; policy
  2. Employer or sponsor; certificate of insurance
  3. Insurer; master contract
  4. State; certificate of authority
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B. Employer or sponsor; certificate of insurance
The employer (sponsor) owns the master contract. Members receive certificates describing their coverage.

2. A noncontributory group plan generally requires participation by what percentage of eligible employees?

  1. 50%
  2. 75%
  3. 100%
  4. 90%
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C. 100%
When the employer pays the full premium, all eligible employees are covered, which prevents adverse selection.

3. A contributory group plan generally requires participation by what percentage of eligible employees?

  1. 75%
  2. 50%
  3. 100%
  4. 60%
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A. 75%
When employees share the cost, a minimum participation level such as 75% protects against adverse selection.

4. When employment ends, a member can convert group life coverage to an individual policy without evidence of insurability within:

  1. 10 days
  2. 60 days
  3. 90 days
  4. 31 days
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D. 31 days
The conversion privilege lasts 31 days, and the person is covered during that period.

5. A group formed only for the purpose of buying insurance is:

  1. Not eligible for group coverage
  2. Eligible if it has 10 or more members
  3. Eligible only for life coverage
  4. Eligible only if it is a fraternal organization
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A. Not eligible for group coverage
To limit adverse selection, a group must exist for a purpose other than buying insurance.

6. When group premiums are based on the group's own claims history, the method is called:

  1. Community rating
  2. Class rating
  3. Experience rating
  4. Manual rating
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C. Experience rating
Experience rating reflects the group's actual losses. Community rating uses the average for a geographic area.

7. In an AD&D policy, the principal sum is paid for:

  1. Loss of one hand or one foot
  2. Accidental death or the loss of two limbs or the sight of both eyes
  3. Any sickness that causes death
  4. Partial disability
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B. Accidental death or the loss of two limbs or the sight of both eyes
Loss of a single limb or eye pays the capital sum, which is a percentage of the principal sum.

8. In an AD&D policy, the capital sum is:

  1. The full face amount paid for accidental death
  2. A monthly disability benefit
  3. A percentage of the principal sum, paid for the loss of one limb or the sight of one eye
  4. A return of premium
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C. A percentage of the principal sum, paid for the loss of one limb or the sight of one eye
Common capital sum amounts are one-half of the principal sum for one hand, one foot, or one eye.

9. To be covered under an AD&D policy, death generally must occur within how many days of the accident?

  1. 30
  2. 60
  3. 90
  4. 365
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C. 90
Most AD&D policies require death within 90 days of the accident.

10. An employee who enrolls in a contributory group plan after the open enrollment period may be required to:

  1. Wait five years
  2. Pay a lifetime penalty
  3. Buy an individual policy instead
  4. Provide evidence of insurability
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D. Provide evidence of insurability
Late enrollees present a higher risk of adverse selection.

11. A multiple employer trust (MET) allows:

  1. Employees to buy individual policies
  2. Small employers to band together to buy group insurance
  3. Unions to administer Medicare
  4. Large employers to self-insure
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B. Small employers to band together to buy group insurance
METs provide group coverage to employers too small to qualify on their own.

12. In a self-funded health plan, the employer often hires a third-party administrator to:

  1. Process claims and handle administration
  2. Act as the reinsurer
  3. Pay all claims from its own funds
  4. Serve as the state regulator
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A. Process claims and handle administration
Self-funded employers bear the claims risk, often with stop-loss coverage.

13. Blue Cross and Blue Shield plans are known as service providers because they:

  1. Only provide services in rural areas
  2. Reimburse the insured after they pay the bill
  3. Are owned by the federal government
  4. Pay hospitals and physicians directly for services
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D. Pay hospitals and physicians directly for services
Blue Cross traditionally covers hospital services, and Blue Shield covers physician services.

14. The purpose of coordination of benefits is to:

  1. Lower the deductible
  2. Allow the insured to collect from every plan in full
  3. Prevent overinsurance by limiting total benefits from all plans to 100% of covered expenses
  4. Combine life and health benefits
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C. Prevent overinsurance by limiting total benefits from all plans to 100% of covered expenses
COB rules determine which plan pays first.
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