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How are Small Group Health Insurance Premiums Calculated?

Group insurances are plans that provide coverage to a group of individuals that have a common interest in receiving coverage at a concessional premium. These policies are cheaper than personal health insurance as the risk is divided among members belonging to different age groups. According to the Insurance Regulatory and Development Authority of India (IRDAI), a group can be formed, on the grounds of individuals having the same credit card, common bank, or people belonging to the same social group. 

Such an insurance plan is also purchasable by employers belonging to the corporate, industrial or the private sector. The employers purchase such a plan for their employees that is for, providing them insurance cover as part of the perks associated with the job. This plan works wonders for the benefit of the employees. It is estimated that the main players in and the biggest buyers of group insurance plan are the business sector. 

A group insurance plan provided to the employees is mostly employer-sponsored that means the premium is payable by the employer and in turn, the coverage is enjoyed by the employee. Of course, this is normally included in your cost-to-company (CTC) when negotiating the salary package. The insurance scheme has a design in such a way that the coverage is for the workers depending on their departments and so on. The policy is also known as corporate health insurance and employee health care. 

Features of a Group Insurance Plan

  1. Waiting period

The individual being insured under a group insurance policy needs to serve a minimal period if asked by the insurance company. Although, this policy has the benefit of waiving off the serving period. Pre-existing diseases are under coverage since day one, and thus most insurance companies relinquish waiting periods. 

  1. Premium

The premium is payable by the employer as business organizations are the main players in this instrument. The main benefit of purchasing group insurance is that the policy offers adequate coverage in-exchange for lower instalments. In some companies, the employer asks the employees to co-pay the premium. Co-payment means a particular ratio being pre-decided between the employer and employee for payment of the instalment.

  1. In-patient

The hospitalization bills of the insured are under the coverage of the insurance company and thus one does not need to worry about it. The patient can enjoy the benefit of a cashless facility if they have been admitted to one of the network hospitals of the insurance company. If not, the reimbursement mode kicks in. 

  1. Medical check-up

As pre-existing diseases are covered under the insurance policy, it is unnecessary to undergo a medical test. Of course, the insured needs to inform the insurance company about any disease they are suffering from. 

  1. Pre- and post-hospitalization

Many hospitals carry out certain tests such as blood tests, lab reports, blood pressure levels, any specific allergies or past sickness one is taking medications for before beginning the actual treatment of the patient. This has been a practice that most hospitals undertake. These tests make the employer well aware of the patient and also helps the doctors know about how they shall treat the patient without causing any side effects or additional issues. The things mentioned above are considered to be pre-hospitalization expenses. Post-hospitalization expenses include doctor’s regular appointments for looking after the patient’s recovery, medicines, and so on. 

  1. Name of the policy

If a bunch of individuals is purchasing such a plan, they can choose a specific name for their group they wish to see as the name of the policy that is on the official document. If the policy is offered by an employer, the policy’s name will be the same as the registered name of the organization. 

  1. Ambulance charges

Emergency ambulance charges are coverable by the group insurance policy up to a limit. One needs to check the terms and conditions, inclusions, and exclusions of the policy to understand the coverage. 

  1. Dependents

Under the employer-sponsored group insurance plan, the employee is allowed to add their family dependents under the policy. The final decision depends on the employer, that is if it is approved by the employer. The premium payable for the additional members is made by the worker. There is a direct salary cut to pay the premium. 

Working on a group insurance plan

The various steps involved are – 

  1. The employer decides to offer a group insurance plan and thus starts looking out for the most suitable plans that help in the benefit of the employees and the organization.
  2. Once the optimum plan has been discovered, the employer puts forward the proposal to the employees. 
  3. The employees need to decide on whether they want to participate in the policy or not. 
  4. If the employer receives 70% or more participation from the employees, he can go forward and fulfil the further arrangements. 
  5. The employer gives an option to the employees if they want to include their immediate family or dependents under the same plan. 

Usually, while choosing the most appropriate plan, the employer provides plenty of options to the employees, and the workers are asked to choose. The work provider decides the route the organization wants to undertake while offering and purchasing a group insurance policy. 

Understanding small group health insurance

The IRDAI had put forward a proposal on the 19th of January, 2016 stating; that the minimum number of participants required for acquiring a group health insurance is 20 members. Large corporates purchase these policies in bulk as they have many employees and due to their extensive management staff. 

Unlike corporates, huge organizations, there are small companies or usually start-ups that enter the field of business. During the initial stages of a start-up, employees looking for jobs do not tend to work for such organizations as they are risky and vulnerable and can be easily diluted, thus causing a loss of hard work of the worker. And thus, such companies opt for group insurances because these policies help the employee to feel safe and secured. It helps them enjoy a sense of belonging and ownership all along. 

In a start-up, the number of employees varies from 5 to 6, and, as the minimum number of participants required is 20, the employer asks the workers to extend the policy to their immediate family or dependents, as it will help the organization successfully apply for a group policy by satisfying the minimum eligibility criteria. 

Factors that decide the premium of a small group health insurance

  • Number of employees

As the policy is opted by a small group of members, the priority is set of fulfilling the minimum eligibility criteria. Once the top-most condition is completed, if the group wants to add further employees they can easily adjoin to the policy. As the number increases, the premium and coverage also expands and vice versa. 

  • Amount of coverage

Simple math, larger coverage = more premium and opposite. If the employer plans on providing a comprehensive policy consisting of adequate coverage then the premium will be a mirror image of the requirements.  

  • Age

The members of the group insurance policy belong to different age groups. The participants are a combination of different age brackets. The insurance company takes into consideration all the age groups and calculates the risk coverage. It is believed that people of higher age tend to suffer from health issues. 

  • Occupation type

The type of organization the employees are working in is taken into consideration. It means that the risk of the worker on the job is considered, and according to that the type of work, job, and risk is calculated thus, deciding the premium chargeable at a gross level. 

  • Adding dependents  

The employer provides an option to the employee if they wish to extend their policy to near family or dependents. As in small companies, the policy is usually extended, the age of dependents is taken into consideration, and accordingly, that known fact also affects the calculation of premium. 

  • Past medical history

The insurance company not only looks into the employee’s pre-existing conditions but also in their past disease conditions, any critical illness suffering from their family background as well as the claiming history from the insured’s health insurance. After taking a look at these facts, the premium calculation can take place. 

Apart from all these factors, an insurance policy has an annual renewal clause that helps the employer add or fewer new employees and remove old employees. While restoring the plan into action again, the number of claims filed by the employees is also taken into consideration as more filing of claims will amount to a decrease in the sum insured and, thereafter lead to an increase in the premium. 

”Small

Is it necessary for an organization to provide insurance to their employees?

The answer to the question depends upon the number of members working in an organization. According to the Affordable Care Act, if the organization has more than 50 employees then the company is obligated to provide a group insurance policy to the workers. If they do not propose such an offer the company can be legally penalized. Although if the company has less than fifty employees, it is not an employer mandate to provide a group health insurance policy to their employees.

Can the employer choose the employees he wants to provide coverage to?

An employer can without any consultation of a third party make a discriminating decision about whom to provide the policy and to whom not, although it is advised that the employer shall not undertake any such action as it will lead to negative image for the organization and dissatisfaction among the employees, impacting the performance of the employees.

The offer shall be provided to all the employees, and if the worker rejects the offer, it is a personal choice, and no hard feelings emerge. The employer has the power to prejudice on rational grounds such as full- or part-time employees, salary or incentive-based work, employee seniority, or job title. Such biases are healthy and also acceptable.

Who pays the premiums for group health insurance plans?

The premium payable for group health policies that are provided by the employer to the employee varies from one company to another and it depends on the internal policies of the organization. Most businesses provide these policies entirely employer-sponsored, which means the employer will pay all the premium instalments from the company’s resources. While in some other organizations, the employer asks the employees to co-pay, this means the employee needs to chip in with a small part of the premium payable; in most companies this is just provided as an additional benefit to the employees. The work provider pre-decides a ratio in which the premium will be divided. On agreeing with the employee, the employer directly deducts a part of the worker's salary for paying the instalment amount.

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