Group Health Insurance Premiums

Premium is the money you pay to get group mediclaim policy. Premiums are paid yearly. That is, you pay a premium for insurance that lasts one year and payment is made once a year. The premium for group health insurance is paid by the employer. However, the employer can make the employees pay a certain percentage of the premium as well. Here we have talked in detail about how premiums work in group health insurance

How are premiums calculated for group health insurance?

The health insurance premium for your group plan is calculated based on various factors like

The average age of your employees

Your insurer calculates the group health insurance premium based on the average age of your employees. As the average age of your employee increases the premium you pay towards your group health insurance policy increases.

The type of plan you choose in GMC

In a group health insurance plan, you have option of choosing

1. E - Employee only
2. ESC - Employee, spouse and children
3. ESCP - Employee, spouse, children, parents or in-laws.

The premium increases according to the increase in the dependent members.

For instance, the premium paid towards the ESCP plan will be higher than the E-only plan as there are fewer lives covered. Hence, your group health insurance premium varies based on the type of group health insurance plan you choose.

The sum insured

The sum insured is the maximum amount the insurer will pay the policyholder in case of any unforeseen events.

You can choose this based on the type of hospital your employees choose, the number of dependents covered, etc. You can choose the sum insured from as low as Rs.50,000 to Rs.10,00,00 or more.

Yes, the premium increases with a higher sum insured but the increase is not directly proportional.

For example, let us assume that the premiums for the respective sum insured are

So, you can see there is no linear increase between the premiums of Rs.50,000 and Rs.10,00,000.

Nature of job

The type of job also influences the premium for your corporate health insurance policy. If the health risk associated with your job is high, then the premiums you pay towards the plan may also increase.

For instance, if you work in the mining industry, your health insurance premium may be slightly higher than that of the employees working in the IT industry.

Factors Impacting Premiums in Group Health Insurance

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Medical inflation

Medical inflation refers to the rising cost of healthcare services and medical treatments over time. It is a phenomenon where the prices of medical goods and services increase, often at a rate higher than general inflation.

Increasing medical costs place a financial strain on insurance companies, leading to higher compensation. Consequently, this is passed on to the customers in the form of higher premiums.

For example, a company XYZ paid an annual premium of 10,00,000 to an insurance company for their group health insurance in 2019. Upon renewal, the insurance company applied an 8% medical inflation adjustment to the bill, resulting in an increased annual premium of 10,80,000 for the year 2020.

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Add-ons opted

The concept of health insurance is changing dynamically. Today companies want to offer something that not only pays your medical bills but also covers other health-related expenses. Now, these benefits are add-ons in an insurance policy.

You can choose additions to your group health insurance plan like maternity insurance, health and wellness programs, dental insurance, doctor consultations, room rent capping, and many more.

Your premiums increase based on the add-ons you choose.

Claim history

If you are purchasing group health insurance for the first time for your organization, then you need not worry about this. However, if you are not new to purchasing a group health insurance plan for your team, then your insurer may look at the claim history you had in the past to decide your premium.

In case, you have a higher number of claims raised in the previous financial year, then it may lead to slightly higher premiums for the next financial year.

Age of employees

According to the insurer, as the age increases, the medical risks associated with the employees go up.

So your insurance company raises the premium to compensate for the risks.

According to this, a company with a younger workforce where the average age of employees is between 20 to 30 may pay lesser premiums than the ones with an average age of 45.

Claims (Loss ratio)

The loss ratio in insurance refers to the ratio of the amount of money an insurance company pays out in claims to the amount of money it receives in premiums.

The formula for the Loss Ratio is:

Loss Ratio = (Total Claims Paid /Total Premiums Earned) × 100

For example, if an insurance company pays out 40,000 in claims for every 50,000 it collects in premiums, the loss ratio would be 80%. A higher loss ratio indicates that a larger portion of the premiums is being used to cover claims, which can impact the profitability of the insurance company. 

If the insurance company finds that the loss ratio has consistently surpassed 100%, indicating that the amount paid out in claims has exceeded the premiums earned from you, the insurer may choose to raise the premium rates

Changes in the number of lives 

Employers pay a set premium for a specific number of employees and their covered lives. However, any increase or decrease in the number of employees directly affects the premium amount. As your organization's workforce grows, the annual renewal premium also increases, reflecting the expanded coverage for additional employees.

For example, a company named XYZ has a group health insurance plan for its employees with a fixed premium of 1000 per employee per month, covering both the employee and their dependents. The company has 100 employees, so the total monthly premium would be:

1000 (premium per employee) x 100 (number of employees) = 1,00,000 per month.

Now, if the company hires an additional 20 employees, the new total number of employees covered would be 120. The revised monthly premium would be:

1000 (premium per employee) x 120 (new number of employees) = 1,20,000 per month.

Conversely, if the number of lives decreases, the premium would decrease accordingly.

Incurred But Not Reported (INBR)

IBNR, or "Incurred But Not Reported," refers to the estimated value of claims that have occurred but haven't been officially reported to the insurance company. It's essential for insurers to set aside funds to cover these claims, especially when reporting may be delayed. This helps ensure financial stability and the ability to meet future claim obligations.

Example: A few employees from Company ABC had experienced medical issues during the policy period, but they hadn't submitted their insurance claims yet. The Incurred But Not Reported (IBNR) amount was estimated to be 4-6% of the annual premium, which stood at 600,000. Upon renewal, this IBNR was factored in, resulting in a revised premium of 624,000.

Changes in Policy Terms and Conditions

If a company opts to modify certain health insurance benefits for its employees, this will inevitably affect the premium paid to the insurance company. These changes may involve adding new benefits like maternity or pet insurance, or introducing caps on certain ailments, etc. Such adjustments lead to alterations in policy terms and conditions, encompassing changes in coverage and capping.

Example: A company XYZ sought to enhance maternity benefits coverage for all employees. Originally they were paying 10,00,000 annual premium for coverage and decided to add 50,000 for maternity benefits. This resulted in a revised annual premium of 12,00,000 to the insurance company.

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