Employers weigh many options when trying to decide on a group health insurance plan, but, in most cases, the choice comes down to money. In fact, research done by the Kaiser Family Foundation (KFF) found that the high cost of group health insurance premiums is the main reason why small businesses will choose not to offer health benefits to their employees. Even for employers that do offer coverage, the consistent rise in insurance premiums can elicit a ton of stress and frustration.
This is especially the case for employers who don’t know how premiums are calculated and how to effectively manage them. In order to avoid being overwhelmed by group health insurance premiums, it’s important to know what they are, how they are calculated, and what different factors impact the cost of group health insurance premiums.
In short, health insurance premiums are either monthly or quarterly payments required to keep your health plan active. It is essentially the same thing as your monthly cable or internet bill. With group health insurance coverage, premiums are determined based on each employee that’s enrolled in the plan and the cost to add dependents, if applicable. All of these individual premiums are combined to obtain the total premium for the group.
This amount is considered the group health insurance premium and is what the employer must pay to the insurance company every month (or quarter). However, most employers will require that employees pay a portion of the total cost of group coverage. In addition to the premium, there are other costs that members must play for health care, including coinsurance, copayments, and a deductible.
The cost of group health insurance premiums will vary from one plan to another depending on the size of the provider’s network, how widespread the benefits are, and additional variables. Generally speaking, group health insurance premiums can only fluctuate based on three chief factors:
Though, according to the Affordable Care Act, group insurance rates cannot be based on:
In most cases, the ages of your employees and their dependents/ spouses are the most noteworthy factor in calculating your total group health insurance premium. The base rate applies to those that are 21 years old. This means that premiums are generally lower for people that are younger than 21 and higher for people that are older than 21 years old. However, this can differ slightly depending on the state. The maximum amount that older members can be charged for premiums is three times the 21-year-old base rate.
For children age 14 and under, though, rates are generally a little over three-quarters of the base rate. Whereas, between ages 15 and 20, the rates go up with each succeeding year. Again, keep in mind that this can fluctuate depending on the state, as states are permitted to create their own rates as long as they still adhere to the 3-to-1 ratio.
When it comes to employees with family coverage, their total premium is calculated by adding up the age-based premiums for each family member. If the family has more than three kids that are less than 21 years old, premiums are only charged for the three oldest, but all still get coverage.
Outlined in the Affordable Care Act, the health insurance premiums for small groups can vary depending on the geographical location. However, the variance in premiums must be related to something other than the overall health of the people in that location. This means that your insurance company cannot charge you a higher premium in one area simply because the people in that particular area tend to have poorer health.
Instead, the differences in premiums based on geographical location must be related to factors like the cost of health coverage. In other words, premiums can be more expensive in places where providers typically charge more for care. They can also be more expensive in places where insurers have less leverage when it comes to negotiating more affordable prices with doctors and facilities.
In most states – except for Vermont, Rhode Island, New York, New Jersey, Massachusetts, District of Columbia, Connecticut, and California – group health plans can charge tobacco users up to 50 percent more for their health insurance premiums than non-tobacco users. Though, the employee must be given the opportunity to avoid this surcharge by taking part in a tobacco cessation wellness program.
Employees are responsible for self-reporting their tobacco usage, and falsification can result in the enrollee losing their benefits or the insurance company taking legal action. Though, even in the states where rates are permitted to be higher based on tobacco usage, some insurance companies choose not to raise premiums based on this factor.
The following strategies are just some of the ways that you can potentially reduce the cost of your group health insurance premium, without surrendering employee satisfaction.
Have more questions about group health insurance premiums, how they’re calculated, and how to keep costs as low as possible? The professional brokers at Taylor Benefits Insurance Agency can help! Contact us today to have all your questions answered.
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