Group Conversion and Individual Benefit Plans
When insurance carriers provide Employee Group Benefits to employers, a key element is in the word group. In order to provide affordable plans, insurers take advantage of economies of scale. Some employees, and their families, may claim less than the premiums their employer pays on their behalf while others claim more. The net result dictates how much an employer pays on behalf of their employees. The more employees in a group plan the less expensive it (should) become on a per employee basis.
One employee alone is not considered a group. Two employees may not be enough for most carriers either. While some exceptions are made for ASSOCIUM clients (such as non-profit employers) insurance carriers generally don’t consider offering group products to employers of one and two employees.
There is a market available for individuals and their families. Many insurers offer such products including life insurance and health and dental plans, however, they can be very expensive and restrictive. In most cases, applicants must demonstrate evidence of good health in order to access the life insurance and even individual health and dental plans. The insurers may exclude certain medications or services that the individual is using or decline to offer coverage entirely. This can pose a problem for employees who are leaving their jobs or retiring.
To help employees around the restrictions posed by individual plans when they leave their jobs, carriers offer what is termed Conversion Privileges. Conversion gives an employee time to establish or convert to alternate coverage without having to prove evidence of good health or some of the restrictions that are often imposed. If an employee leaves and is not going to another job where benefits are offered, the plan administrator should inform the departing employee of the conversion option.
Under the Conversion Privilege, Insurers will allow 31 days from the last day worked for the employee to arrange the continuation of life insurance coverage with them, and the employee cannot be declined. What will change is the rate and, therefore, the premium. For example, if the employee had $50,000 of coverage in the plan, they would be eligible for no more than $50,000 of similar coverage at rates appropriate to their current age, sex and smoking status.
A window of 60 days is available to convert health and dental coverage to an individual plan. Whether a retiree or a younger person is leaving an organization, there are plan packages available. Generally, these plans do not mimic the plan an individual is leaving. Lower maximums on drugs, dental, travel and other products and services are common. Premiums are usually more than the group plan as the insurer’s price is based on the anticipated usage of individuals and their families. However, an applicant does have the option of providing health evidence. If approved, plan packages and premiums can be much more attractive.
When an employee leaves your organization, it is vital that they be informed of their conversion options. Please feel free to contact your ASSOCIUM Benefits administrator for further information or assistance.
ASSOCIUM Benefits is a very unique employee group benefits provider, focused on supporting benefits Advisors and their employer clients. We provide Brokers and Plan Sponsors with a range of solutions from traditional group benefits to more customized, cost and tax effective employee compensation. Let’s connect to find out how we can help.