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health insurance guaranty association

How Does Health Insurance Guaranty Association Work?

What happens to policyholders and their insurance when a health insurance company becomes insolvent and can no longer pay claims? In most cases, the health insurance guaranty association steps in to provide some degree of protection.

Guaranty associations act as a sort of insurance company for insurance companies in a mannor of speaking. The association will transfer the insurer’s policies to another health insurance company or continue providing coverage itself for policyholders.

How It Works
Health insurance is monitored at the state level, so the guaranty associations are run by each state, which means it can differ from state to state, but they are modeled on the National Association of Insurance Commissioners’ (NAIC) Life and Health Insurance Guaranty Association Model Act.1

The policyholder should continue to pay their monthly premiums when they are due, so their claims are covered. If the policyholder does this, the guaranty association will pay claims for covered insureds for the remainder of the plan year, up to the maximum limits determined by the state.

When the policy is up for renewal, the plan will not renew. Since the insurer is insolvent, the individual or business owner will switch to a different insurer.

Without guaranty associations, insureds and their medical providers would be stuck having to wait for the liquidation process to be completed and assets to be allocated. This would generally involve a lengthy wait, and depending on the insurer’s financial situation; it might also result in very little in the way of payouts.

Guaranty associations were created to alleviate these problems and ensure that claims are still paid promptly when an insurance company becomes insolvent.

Cosmo Insurance Agency is a full-service independent insurance agency based in Hackensack (Bergen County) and Lakewood (Ocean County), New Jersey that offers an all-encompassing range of insurance options for both individuals and businesses. Cosmo keeps its promise to assure an efficient and creative approach to the services we offer. Each of our clients experience a personalized and long-term relationship with us. Our New Jersey based team of health brokers guides our clients in helping them choose the most cost-effective options. By incorporating our knowledge of the insurance guidelines for healthcare, employee benefits, life insurance, self-insurance, dental, disability, and long term care insurance, we keep our clients up-to-date with affordable plans that cover all their specific insurance needs.