STATE REGULATION : Contractual Provisions in Group Insurance & Benefit Limitations

Contractual Provisions in Group Insurance
Through its insurance laws, every state provides for the regulation of contractual provisions. In many instances, certain contractual provisions must be included in group insurance policies. These mandatory provisions may be altered only if they result in more favorable treatment of the policyholder. Such provisions tend to be most uniform from state to state in the area of group life insurance, primarily because of the widespread adoption of the NAIC model bill pertaining to group life insurance standard provisions. As a result of state regulation, coupled with industry practices, the provisions of most group life and health insurance policies are relatively uniform from company to company. In most instances, an insurance company's policy forms can be used in all states. However, riders may be necessary to bring certain provisions into compliance with the regulations of some states.

Traditionally, the regulation of contractual provisions has focused on provisions pertaining to such factors as the grace period, conversion, and incontestability rather than on factors pertaining to the types or levels of benefits. These latter provisions have been a matter between the policyholder and the insurance company. However, in recent years this has changed in many states. In some states, certain benefits—such as well-baby care and treatment for alcoholism or drug abuse—must be included in any group insurance contract; in other states, they must be offered to group policyholders as optional benefits. Still other state laws and regulations specify minimum levels for certain benefits if those benefits are included.

It is interesting to note that, with few exceptions, the regulation of contractual provisions affects only those employee benefit plans funded with insurance contracts. This is because provisions of ERISA seem to exempt employee benefit plans from most types of state regulation. However, there are exceptions to this exemption; these include insurance regulation and therefore the provisions in insurance contracts. As a result of this ERISA exemption, states have few laws and regulations applying to the provisions of uninsured benefit plans. However, ERISA does not exempt uninsured plans from state regulation in such areas as age and sex discrimination, and laws pertaining to these areas commonly apply to all benefit plans. A few states are also trying to mandate other types of benefits for uninsured plans, and ultimately the issue will probably have to be settled by Congress or the Supreme Court.

Benefit Limitations
Statutory limitations may be imposed on the level of benefits that can be provided under group insurance contracts issued to certain types of eligible groups. With the exception of group life insurance, these limitations rarely apply in situations involving an employer-employee relationship. In the past, most states limited the amount of group life insurance that could be provided by an employer to an employee. Today, only Texas still has such a restriction, but its limit is so high that the limit has little practical effect. However, several states limit the amount of coverage that can be provided under contracts issued to groups other than individual employer groups. In addition, some states limit the amount of life insurance coverage that may be provided for dependents.