LLQP Group Benefits Plan Concepts 4 — Questions and Answers
Question 1: Under a group benefits plan, what is the purpose of a 'coordination of benefits' (COB) provision?
- To prevent an employee from receiving duplicate payments exceeding 100% of eligible expenses when covered under two plans (Correct answer)
- To coordinate premium payments between the employer and insurer
- To synchronize benefit renewal dates across multiple insurers
- To coordinate disability and life insurance benefits within the same plan
Correct answer: To prevent an employee from receiving duplicate payments exceeding 100% of eligible expenses when covered under two plans
COB provisions ensure that combined payments from primary and secondary group plans do not exceed the actual eligible expenses incurred.
Question 2: A group insurer uses 'experience rating' to set renewal premiums. What does this mean?
- Premiums are based on the group's own claims history over the prior period (Correct answer)
- Premiums reflect the insurer's overall book-of-business loss ratio
- Premiums are fixed for three years regardless of claims
- Premiums are set by the regulator based on industry benchmarks
Correct answer: Premiums are based on the group's own claims history over the prior period
Experience rating adjusts a group's renewal premium up or down based on the actual claims paid for that specific group in the prior policy period.
Question 3: Which of the following best describes a 'non-contributory' group benefits plan?
- The employer pays 100% of the premiums and employee participation is mandatory (Correct answer)
- Employees and employer share premium costs equally
- Employees pay all premiums through payroll deduction
- Participation is voluntary and employees choose their own benefit levels
Correct answer: The employer pays 100% of the premiums and employee participation is mandatory
In a non-contributory plan the employer funds the entire premium, and because there is no employee cost-sharing, 100% enrollment is typically required.
Question 4: What is a 'flex benefits' or cafeteria plan in the context of group benefits?
- A plan that gives employees a set dollar allowance to choose among various benefit options (Correct answer)
- A plan where benefit amounts flex automatically with salary increases
- A plan that allows the insurer to flex premium rates monthly
- A plan restricted to food and wellness benefits only
Correct answer: A plan that gives employees a set dollar allowance to choose among various benefit options
Flex or cafeteria plans provide employees with credits they allocate among benefit options such as health, dental, life, and disability according to their personal needs.
Question 5: Under group life insurance, what is the typical tax treatment of employer-paid premiums for coverage up to $50,000 (US context)?
- Employer-paid premiums for coverage up to $50,000 are excluded from the employee's taxable income (Correct answer)
- All employer-paid premiums are fully taxable as income to the employee
- Premiums are taxable only if the employee is also covered under an individual policy
- Premiums become taxable when the employee reaches age 65
Correct answer: Employer-paid premiums for coverage up to $50,000 are excluded from the employee's taxable income
Under IRS rules, employer-paid group-term life insurance premiums for coverage up to $50,000 are excluded from an employee's gross income.
Question 6: What is the significance of the 'actively-at-work' clause in a group benefits plan?
- Coverage only becomes effective for a new employee if they are actively working on the date coverage is scheduled to begin (Correct answer)
- It requires employees to work a minimum of 40 hours per week to qualify for benefits
- It prevents employees on leave from filing claims under long-term disability
- It allows the insurer to cancel coverage if an employee misses more than five days in a year
Correct answer: Coverage only becomes effective for a new employee if they are actively working on the date coverage is scheduled to begin
The actively-at-work clause delays the start of coverage for any employee who is absent due to illness or injury on the effective date of coverage.
Question 7: In group insurance, what does 'pooling' refer to in the context of large claims?
- A mechanism where very large individual claims above a set threshold are absorbed by the insurer's broader pool rather than charged entirely to the group's experience (Correct answer)
- Combining premiums from multiple unrelated employers into one master policy
- Splitting claim costs equally among all plan members
- A reinsurance arrangement where multiple insurers share all group risks equally
Correct answer: A mechanism where very large individual claims above a set threshold are absorbed by the insurer's broader pool rather than charged entirely to the group's experience
Pooling limits the impact of catastrophic individual claims on a group's experience rating by capping the amount charged to that group and spreading the excess across all groups.
LLQP Group Benefits Plan Concepts 4
Under a group benefits plan, what is the purpose of a 'coordination of benefits' (COB) provision?