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 –
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.
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.
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.
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.
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.
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.