How is group health insurance premium calculated?

  • postauthorTripti Rai Tripti
  • postdateFebruary 7, 2024
  • postreadtime4 min read
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Out of every factor that a business considers when choosing a group health insurance scheme, the one that becomes more or less the deciding factor is the cost of group health insurance premiums that they would have to pay.  

The impact of it is so much so that the high cost of premium often keeps businesses away from offering group health insurance to their employees. On the other hand, a lack of knowledge around how the premiums are calculated can lead to stress and confusion among them.  

How is group health insurance premium calculated

How is group health insurance premium calculated?

Having helped over 1000+ businesses extend healthcare benefits and insurance to their employees; we know that the biggest confusions around group health insurance arises out of lack of understanding. The lacking can be both in the line of what is group health insurance and even how group health insurance premiums are calculated.  

In this article, we are going to look into the different factors that answer how is group health insurance premium calculated. Without further delay, let us get right into the most searched group health insurance terms.   

Factors that help estimate the cost of health insurance 

How is group health insurance premium calculated?

There are several factors that contribute to the cost of premium for medical insurance that an insurance firm charges from an employer. These factors decide what would be your group health insurance cost per month or what would be the health insurance costs by year.  

Average age  

The primary answer of how is group health insurance premium calculated lies in the average age of your employees. Normally, young people have better immunity and are generally free from chronic illnesses compared to their older counterparts. As a result, their premium is on the lower side. So, when the average age of your company is under 35 years, the cost of premium will be lower than when it is over 35 years of age.  

Job type 

There are some jobs that are considered risk-averse, while others are more at-risk in terms of employees’ health-related issues. This is the reason why job types play a role in answering how to calculate premium of insurance. For example, the employees in a mining company are more at risk in terms of health and accidents compared to the employees in a media agency.  

The higher the risk in a job, the greater are the premium charged by the insurance company.  

Scope of coverage  

There are typically three types of group health insurance coverage that an employer offers: 
– E plan: These plans only cover the employees 
– ESC plan: These plans cover the employees, their spouses, and p to 4 children 
– ESCP plan: These plans cover employees, their spouses, up to 4 children, and 2 parents. 

The more dependents you add to your coverage, the higher the premium you will have to pay to  the insurance company. Besides dependents, the scope of coverage is also estimated by the  additional healthcare benefits that you offer to your employees. These add-ons can include  vision, dental benefits, OPD consultations, nutrition and fitness benefits, health check-ups, etc. 

Sum insured 

Another cost impacting factor of monthly group health insurance premiums or annual premiums is the amount of sum that the employers insure for their employees. As a concept, sum insured is the upper limit of the amount that an insurance company will pay if your employee gets hospitalized. Now, the more the amount of sum insured, the higher would be the cost of premium that you will have to pay.  

The amount of sun insured is generally decided by both companies and insurance firms  together. It would help if you arrive at a point after studying the kind of hospitals your  employees generally visit and the scope of family coverage you are offering them.  

Claim history  

One of the methods of premium calculation is the claim history. In instances where multiple claims are raised in a policy period, the insurance company tends to increase the chargeable premiums when they renew the policy. For instance, Company A has raised fewer claims than expected in a policy period. Whereas, Company B has raised claims frequently at a higher-than-expected claim price during the policy period.  The insurance company in this case will increase the premium for medical insurance for Company B.  

FAQs about how is group health insurance premium calculated

Are premiums higher in group insurance? 

Group health insurance plans are engineered to be cost-effective for the businesses. For the employees too, the premiums are a lot less than if they buy an individual healthcare plan.  

Who pays the premiums for group health insurance? 

The group health insurance premium cost is usually managed by the employers.  But there are companies that divide the premium between themselves and their employees.  

What is the minimum number of employees do I need to have to offer group health insurance? 

There is no lower limit. You can provide group health insurance even if you have 3 people in your team.  

How much does it cost to buy a group health insurance plan for a team of 30 people? 

The amount of health insurance premium depends on multiple factors – claim history, sum insured, average age of the employees, etc. Thus, the cost of group health insurance for 30 people can only be determined after studying your plan inclusions.  

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