How is My Group Health Insurance Premium Calculated?

Group Health Insurance accounts for more than 50% of the non-government sponsored health insurance market. A group health insurance policy is offered to a company with a minimum of 7 employees. Maximum size of a group can go into thousands. As a result, there is a lot of variability and complexity in calculating the exact premium for a group health insurance plan.

There are a lot of factors that can affect the premium for your company. It is thus important to know these factors and the potential impact these factors have on the eventual premium. You may often have to try different combinations of these factors and see what best fits in your organization’s budget.

Here, We Will Attempt to Decode all of These Factors in Detail

Group Size

First and foremost, the size of your company has a lot to do with the eventual premium you will end up paying. A larger company size gets you the benefit of volume discounts and also reduces the risk for the insurer. Generally, larger organizations ( >500 employees) see better premiums (~50% cheaper) than organizations with say, 50 employees. There is almost nothing you can do to increase your group size. It thus becomes important for you to work with an insurer or an agent who can negotiate hard on your behalf to get you the best price.

Average Age of Your Employees

This is one of the most important factors which affects the premium. Generally, an organization with a younger workforce sees lesser premium than an organization with older employees.

This is based on the fact that the number of claims for a younger workforce is likely to be lesser than a relatively older group. Younger members are likely to be healthier, have lesser existing diseases and thus generally lower claims cost for the insurer.

Who is Covered Under the Plan?

There are 3 primary types of group definitions allowed in group health insurance plans

1. Employee Only Plan
2. ESC Plan – Employee, Spouse & up to 2 dependant children
3. ESCP Plan – Employee, Spouse, 2 dependant children and up to 2 parents.

Generally, the more dependants or people you add to the health insurance coverage, the higher would be the cost. Also, since age plays an important factor in the calculations, adding parents to the plan ( who will be in higher age groups) invariably increases the overall premium up to 4 times the premium for an employee-only plan.

Total Sum Insured

This is kind of self-explanatory. Generally, a higher sum insured translates to a higher premium. A 4lac plan would likely cost about 2 times a 1 lac plan. It should be noted that premiums do not increase linearly with the sum insured. Hence, the difference between a 10 lac plan and 5 lac plan may not be greater than 20% of the premium. Choose the sum insured wisely taking into account the kind of hospitals your employees go to as well as the general treatment costs in your city.

Past Claims Experience

This has no bearing if your company is taking a group health insurance for the first time for its employees. However, if you are renewing an existing group health insurance, your past claims ratio will also play an important part in deciding the premium. This is irrespective of the fact that you may opt for a new insurer or continue with the existing one. If the frequency and the number of claims are high, your premium will be higher than for someone who has a lower claims ratio.

Nature of Job

Your job and kind of work influence your lifestyle/habits and may leave you prone to pick up certain ailments/diseases. A person working in a managerial role in an office setting is at a lower health/accident risk than someone working as a supervisor on a factory floor. Hence, the kind of work your company does also plays an important role in deciding premiums.

Customizations and Add-ons

You may choose to customize your policy according to the needs of your employees and offer benefits to make their insurance coverage comprehensive and give your employees peace of mind. Each of the add-ons has an impact on the premium. You may have to weigh the potential benefits of each of these to your employees and compromise on some of the benefits so as to offer the best coverage to your employees in your budget. These add-ons are

1. Maternity Benefits – You may choose to extend maternity benefits to your employees. This takes care of the delivery and related expenses for up to 2 children per family as per the specified limits. The increase in premium would depend upon the number of females covered as well as the age composition of the group.
2. Pre-existing disease coverage – You may choose to waive off all waiting periods associated with health insurance and give your employees the benefit of covering their existing health conditions from day 1. Such an add-on may increase your premium by up to 30%. The premium for this add-on depends upon the age distribution of your group. Generally, younger employees may have lesser number of existing health conditions – thus lower premiums to cover existing diseases.

There are other factors and add-ons which may also increase your premium amount. It is thus important to choose your insurance advisor wisely and work with him/her to design a comprehensive health insurance plan for your employees.