This past weekend, I made the mistake of getting involved with the comments section on a Facebook post* involving a pre-authorization denial from an employer-sponsored health insurance plan. During that skirmish, someone insisted that there was a contract between the “person who purchased the insurance (employee)” and the health insurance plan.
It’s a perfectly logical statement, but it’s still incorrect. Someone who isn’t familiar with insurance might easily make that mistake.
Unfortunately, it’s also a mistake a lot of insurance professionals might not immediately spot, because the very first day of our pre-licensing training goes over who’s who in an insurance contract. By the time we’re actually out there doing our jobs, the difference is so ingrained as to be automatic — we often don’t even think about it.
The bottom line here is that all insurance plan contracts, including health insurance, involve not two, but three parties.
- The insurance carrier;
- The policyholder; and
- The covered insured.
It is possible for the policyholder and the covered insured to be the same entity, but it is not required, and that’s where this poster made their mistake: in an employer- or union-sponsored plan, the covered insureds are not the policyholders.
Policyholder vs. Covered Insured: What’s the Difference?
Let’s start with a quick definition of who’s who. It’s pretty obvious who the insurance carrier is, but what’s the difference between the policyholder and the covered insured?
- The policyholder is the owner of the insurance contract, and they’re the ones who sign on the dotted line. They bear the responsibility of making sure premiums are paid on time; they have the right to ask the insurer to adjust or change the coverage; and they can decide whether to continue or terminate it.
- The covered insured is the entity (person or business) who is protected by the insurance contract. They are eligible to receive the benefits of any claims that may be incurred, but they do not have the right to change the coverage. They also aren’t responsible for paying the premiums.
As I mentioned, it’s possible for the policyholder and the covered insured to be the same. For example, my car insurance works this way: I’m the one who pays the premiums, and I’m also the one who can file a claim and be paid benefits under the policy. Thus, I am both policyholder and covered insured.
How It Works for Employer/Union Plans
But in the case of an employer- or union-sponsored (“group”) insurance policy, the plan sponsor — i.e., the employer or the union — is the policyholder and the covered employees are the covered insureds.
But wait, you might argue. I do pay the premiums for my coverage. They come out of every paycheck. Doesn’t that make me the policyholder?
Not quite. The plan sponsor is the one who cuts the (usually monthly) check to the insurance company, and that check is for coverage of all of the covered insureds. What the employer/union is doing is withholding a part of your paycheck that they will use to help fund that payment to the insurance company.
The insurance company generally has no idea how much you’re paying toward the premiums, because that’s between you and your employer/union. All they know — and, for the most part, all they care about — is whether they receive the money for the premiums. If they don’t, they reach out to the plan sponsor, not to the covered insureds.
Particularly for group health insurance, the carrier may require a cap on employee contributions and expect the plan sponsor to cover the balance out of operating funds. But that’s a topic for a different post.
Is This Only for Employer/Union Plans?
No. The differences between policyholders and covered insureds exist on other types of insurance contracts. If I covered a second driver under my car insurance, they would have no control over the type or amount of coverage, when it began or ended, or who the carrier was. Those decisions would still be mine, as would be the responsibility for making the premium payments.
Further, if I asked the other driver to reimburse me for the additional premium, that would be an agreement between them and me. The insurance carrier wouldn’t care — and the other driver’s potential failure to reimburse me wouldn’t change the fact that I owed that premium.
Why Should I Care?
It matters because, if there’s a conflict between you and your health coverage, the insurer doesn’t consider you a party to the insurance contract. You aren’t; your employer or union is. Thus, arguments or appeals based on your personal contract rights won’t work. There’s no contract to begin with.
The good news is, you still have resources and you do have rights as a covered insured. They come from the contract itself, which spells out your appeal rights in detail, and from the laws that regulate group coverage. (The contract will also specify the plan type, which clarifies which laws apply.) You’re not powerless. You just need to be aware of who has what rights, and how to use the ones that belong to you.
* Yes, I usually know better than this.