How are premium rates determined for employee group health insurance plans?
Employers buy group health insurance plans for their employees as a part of their employee benefit program. These plans provide affordable coverage to existing as well as new employees of the organisation. The sum insured is determined by the employer company and might depend on the employee’s income level, designation in the organisational hierarchy or age. Premiums, on the other hand, are calculated after taking various factors into consideration. These factors include the following –
- Number of employees being covered – since coverage is allowed to all the employees of the organisation, the total number of employees who are to be covered directly affect the premium rates. The higher the number of employees to be covered, the higher would be the premium rate.
- Sum insured allowed – premiums are directly linked to the sum insured allowed under group health insurance plans. The higher the sum insured the higher would be 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 would be the premium charged.
- Nature of occupation – the type of occupation affects the health risk of the employee. If the business is engaged 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 is extended to cover the dependents of the employee as well. If dependents are covered, the premiums would increase. In such case the premium would also depend on the number of dependents covered and their ages.
- Add-ons opted – group health insurance plans can be customized by choosing additional coverage options. If the employer chooses add-ons or riders under the coverage, the premium would increase.
- Past claim experience – past claim experience of the group is also taken into consideration when calculating the premium for a group health insurance policy. If there had been frequent and high volumes of claims in the past, the premiums would be higher. Alternatively, if there had been relatively limited number of claims in an existing group health insurance plan, the renewal premium would attract a discount.
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 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. In some organisations, the group health insurance premiums may also be paid 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 then the policy is issued. 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 is fixed.
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