Group Health Insurance Premiums

Friday, March 29, 2024 19:56 Posted by Admin

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.

What are 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.

What factors can impact group health insurance premiums?

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:

• The age of enrolled employees and their dependents
• The business location.
• Tobacco use among employees and their dependents, excluding states that disallow this factor.

Though, according to the Affordable Care Act, group insurance rates cannot be based on:

• The health status of individual members.
• The industry or business type of the group.
• The overall medical claims history of the group.

How does age impact health insurance premiums?

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.

How does location impact health insurance premiums?

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.

What are tobacco premium surcharges?

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.

How can employers reduce the cost of group health insurance premiums?

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.

• Higher young employees. Generally speaking, the younger an employee is, the fewer health concerns they will have. Also, the younger your team, the fewer insurance claims you will have to file as a company. In the eyes of your insurance provider, this makes you look better and, thus, can lower your premium.
• Hire more employees. The more employees that you have on staff, the cheaper your group health insurance premium will be. This has to do with the fact that group health insurance divides the insurer’s risk between a group of individuals. So, if your company has more employees, the risk is less for the insurance company.
• Exclude vision and dental. Limiting coverage is one of the easiest ways to keep insurance costs at a minimum. Excluding vision and dental is one of the most common ways to do this, without upsetting employees.
• Offer preventative wellness plans. Wellness plans are growing in popularity among businesses that want to keep their insurance premiums low. These plans may provide things like cancer screenings, flu shots, mental health services, and non-smoking meets – free, or low cost. They can help encourage your employees to get healthy and stay healthy.
• Consider health savings accounts. Health savings accounts, or HSAs, are paired with high-deductible health plans (HDHP). They are set up to allow employees to set aside their pre-tax money to be used on future qualifying medical expenses. HDHPs lower premiums for both employer and employee, as there are more out-of-pocket costs involved.

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.