Employers buy group health insurance plans for their employees as a part of their employee benefits program. These plans provide affordable coverage to existing as well as new employees of the organization. The sum insured is determined by the employer or organization and might depend on the employee’s income level, designation in the organizational hierarchy, or age. Premiums, on the other hand, are calculated after taking various factors into consideration.
These factors include the following –
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The number of employees being covered –
Since allowed coverage to all the employees of the organization, the total number of employees covered directly affects the premium rates. The higher the number of employees covered, the higher would be the premium rate.
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Sum insured allowed –
Premiums directly linked to the sum insured are allowed under group health insurance plans. The higher the sum insured the higher the premium charged and vice-versa.
- Age of the employees –
As age determines the risk of health issues, premiums depend on age. The higher the ages of the employees, the higher the premium charged.
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Nature of occupation –
The type of occupation affects the health risk of the employee. If the business engages in dangerous occupations which might cause a health risk, premiums would be higher. Alternatively, if the employees are mostly occupied with a desk job, there would be lower health risks and the premiums would be low.
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Coverage for dependents –
In many instances, the group health insurance coverage extends to cover the dependents of the employee as well. The premiums would increase, by covering the dependents. In such cases, the premium would also depend on the number of dependents covered and their ages. If the dependent parents need to be covered, the group health insurance premium will be high, as the chances of claims would increase.
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Add-ons opted –
Customization of Group medical insurance plans by choosing additional coverage options. Also, if the employer chooses add-ons or riders under the coverage, the premium would increase.
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Past claim experience –
Past claim experience of the group, taking into consideration when calculating the group health insurance policy premium. If there had been frequent and high volumes of claims in the past, the premiums would be higher. Above all, if a relatively limited number of claims in an existing group medical insurance plan had to be, the renewal premium would attract a discount.
Additional Read: How to Negotiate Best Price for Group Health Insurance for Employees
These are some of the basic factors which determine the premiums charged by the insurance company for group health insurance plans. The insurance company agrees to the sum insured and then calculates the premiums depending on the above-mentioned factors. The employer can pay the premium itself or collect it from their employees. Also, some organizations pay the group health insurance premiums partly by the employer and partly by employees. Irrespective of whoever pays the premiums, the insurance company collects it from the employer in one lump sum in advance and issues the policy. Different insurers might also offer premium discounts which help in lowering the premium rate. So, before buying a group health insurance policy, employers should understand premium calculation to know how their group health premium may fix.
Frequently Asked Questions (FAQs)
1. Why does my industry type affect the health insurance premium?
A) Insurers categorize businesses by “Nature of Occupation.” If your employees work in a factory with heavy machinery or travel frequently for field assignments, the risk of accidents or health complications is higher than that of an office-based consulting firm, leading to higher premiums.
2. Can we lower our renewal premium if we had very few claims last year?
A) Yes. This is known as a “Good Experience Discount.” If your group’s claim ratio is low, insurers often offer a discount on the base premium to reward the group’s health and retain your business.
3. Does the premium stay the same if I hire 50 more people mid-year?
A) No. Most group policies are “CD Account” (Cash Deposit) based or adjusted on a pro-rata basis. When you add new members, the insurer will charge an additional premium for those individuals for the remaining duration of the policy year.
4. Is it cheaper to cover only employees rather than including their families?
A) Significantly. Adding dependents—especially parents—can double or even triple the premium. Many employers manage this by offering a base cover for employees and allowing them to pay an extra “top-up” premium if they wish to include their family members.
5. Are “Add-ons” like Maternity or Dental worth the extra premium?
A) This depends on your workforce demographic. If you have a young team, maternity benefits are highly valued and can improve retention. However, if these are not a priority for your staff, removing them is the fastest way to reduce your premium costs.
About The Author
Mayank Sharma
MBA Finance
He is a professional who brings extensive knowledge and expertise to the field of group health insurance. He has dedicated 7years to helping individuals and businesses navigate the complexities of insurance. Having worked closely with numerous clients and insurance providers, he deeply understands the nuances of group health insurance policies. With a reputation for providing insightful and informative content, he leverages his industry experience to educate readers about the importance of group health insurance and its benefits. Through their articles, Mayank Sharma aims to empower individuals and businesses to make informed decisions about their healthcare coverage, ultimately promoting healthier and more secure communities.
