Factors influencing the premium of a group health policy
Group health insurance refers to medical insurance cover for a group. Such a group mediclaim policy can be availed by employer-employees, banks and their customers, and clubs and their members.
What factors affect premiums and how?
A group’s size, average age, and occupation are important determiners of the premium of a group medical insurance plan. Thus, the larger a group, the lower its premium for a group mediclaim policy. Similarly, if the average age of the group is low, premiums will be low. Field, factory, airline staff, healthcare workers and offshore workers are considered high risk and will have to pay higher premiums. On the other hand, clerical staff are lower risk and policies for them will have lower premiums.
Another significant factor is claim history of the employer or group administrator. What this means is that higher past claim ratios will lead to higher premiums. Claims ratios of over 100% will definitely result in premium increases.
Additionally, the features and riders that a group opt for also determine premiums. Thus, the more add-ons a group selects, the higher the premiums it will have to pay for group medical insurance.
Meanwhile, choosing a co-pay option will reduce premiums on group health insurance.
Case study: Size and average age of the group
College friends Kirti Bisht and Vivek Madhukar joined different firms. While Kirti joined a large FMCG firm with almost 12,000 employees pan-India, Vivek joined a start-up.
Vivek’s company employs only 12 people, and it is mulling a group health policy for its employees and their dependents. Vivek remembers that Kirti and her employer contributed equally (Rs. 2,650) for a group health plan that gives Kirti a health cover of Rs. 500,000. Accordingly, he expects to pay a similar amount as premium and opts for Rs. 500,000 cover. However, his premium is Rs. 3,580.
The insurer’s explanation: The firm has very few employees and even the addition of family members of employees takes the number only to 20, the minimum covered under the policy. In fact, the premium would be higher still if the firm tried to match the features and riders that Kirti’s employer offered.
The good news for Vivek though is that the average age of the employees in his company is only 29 compared to the average age of 37 in Kirti’s company. This, combined with a cleaner claim history for Vivek’s company, might lower premiums in the future.
Case study: Type of occupation and add-ons
Giriraj Sundaram is general manager, Human Resources, at Vatsam Precision Equipment (VPE) Pvt. Ltd. He has to motivate employees through various benefit schemes. For instance, one scheme the management has approved is corporate health insurance. Accordingly, Giriraj is now considering the premium payable under the policy and examines the following information:
|Total number of employees at VPE||120|
|Clerical and sales staff||30|
|Quality management and machine upkeep staff||10|
|Permanent drivers and peons||10|
The insurer quotes a premium based on a weighted average of occupational risks. Thus, it assigns the highest per life rates to the drivers and the lowest to the clerical staff. These rates are then weighted to get an overall rate for the company.
The firm’s initial premium is Rs. 3 lakh. VPE also added a corporate buffer of Rs 1 lakh. If an employee incurs medical expenses of more than their sum assured, the excess costs can be paid from this buffer. The buffer added an additional cost of Rs 70,000 taking the total premium to Rs 3.7 lakh.