STATE REGULATION : Eligible Groups

Even though the U.S. Supreme Court has declared insurance to be commerce and thus subject to federal regulation when conducted on an interstate basis, Congress gave the states substantial regulatory authority by the passage of the McCarran-Ferguson Act (Public Law 15) in 1945. This act exempts insurance from certain federal regulations to the extent that individual states actually regulate insurance. In addition, it provides that most other federal laws are not applicable to insurance unless they are specifically directed at the business of insurance.

As a result of the McCarran-Ferguson Act, a substantial body of laws and regulations has been enacted in every state. While no two states have identical laws and regulations, there have been attempts to encourage uniformity among the states. The most significant influence in this regard has been the National Association of Insurance Commissioners (NAIC), which is composed of state regulatory officials. Because the NAIC has as one of its goals the promotion of uniformity in legislation and administrative rules affecting insurance, it has developed numerous model laws. Although states are not bound to adopt these model laws, many states have enacted them.

Some of the more significant state laws and regulations affecting group insurance include those pertaining to the types of groups eligible for coverage, contractual provisions, benefit limitations, and taxation. Moreover, because many employers have employees in several states, the extent of the regulatory jurisdiction of each state is a question of some concern.

Eligible Groups
Most states do not allow group insurance contracts to be written unless a minimum number of persons are insured under the contract. This requirement, which may vary by type of coverage and type of group, is most common in group life insurance, where the minimum number required for plans established by individual employers is generally ten persons. A few states have either a lower minimum or no such requirement. A higher minimum, often 100 persons, may be imposed on other plans, such as those established by trusts, labor unions, or creditors. Only about half the states impose any minimum number requirement on group health insurance contracts. Where one exists, it usually is either five or ten persons.

Most states also have insurance laws concerning the types of groups for which insurance companies may write group insurance. Most of these laws specify that a group insurance contract cannot be delivered to a policyholder in the state unless the group meets certain statutory eligibility requirements for its type of group. In some states these eligibility requirements even vary by type of coverage. While the categories of eligible groups may vary, at least four types of groups involving employees are acceptable in virtually all states:

- Individual employer groups

- Negotiated trusteeships

- Trade associations

- Labor union groups

Other types of groups, including multiple-employer trusts, are also acceptable in some states. Some states have no insurance laws regarding the types or sizes of groups for which insurance companies may write group insurance. Rather, eligibility is determined on a contract-by-contract basis by the underwriting standards of the insurance company.