How much have your group health insurance costs risen over the last three years?
Many businesses see increases ranging from 6% to 56% on their group health insurance costs every year. If you are like most businesses, your group health insurance premiums account for your second or third largest operating expense.
What factors affect the way your premiums are calculated?
If you are a business that employs over fifty people, I would like to help you understand which factors affect your health insurance premiums. While businesses with fifty or fewer employees are rated under the Affordable Care Act small group guidelines, businesses with a greater number of employees are “medically underwritten.” That means that each company is individually evaluated based on its risk factors and past claims.
At Baily Insurance, I have the privilege of helping businesses of all sizes find group health insurance coverage for their employees. Having worked for one of the largest health insurance companies in the nation for many years, I want to share with you what I have learned about the costs of group health insurance and factors that will influence your premiums.
Let’s talk about the three components that insurance companies will evaluate as they build an insurance package for your business: people, process, and product.
The first component that insurance companies look at when they evaluate your company is your employee demographics. Insurance companies will be evaluating the following:
Number of employees
Generally, a larger number of employees actually decreases your premium. Companies with 50 or fewer employees are not able to negotiate with insurance companies over their group health insurance premiums.
Typically, the younger your employees the less you will pay in health insurance premiums. Older employees often deal with ongoing health issues. Knowing that it is more likely that older employees will need to use their health insurance, coverage for this age group is generally more expensive.
If a business, for example, has a high number of women in their 20’s and 30’s, coverage for their employees might be greater. Insurance companies would take into account the likelihood of these employees needing prenatal and maternity care resulting in claims the insurance company would have to cover.
Location of your business
Just like it costs more to live in New York City as compared to a small rural town in Pennsylvania, group health insurance will also vary depending on the region where your business is located.
Type of business
Insurance companies consider the type of work a business does and account for the possibility of injury when they quote a business’s insurance premiums. Businesses with a greater likelihood of injury like construction, forestry, emergency response, etc. will have more expensive group health insurance. On the other hand, businesses with a low chance of injury such as web design, auto sales, banking, etc, will have less expensive health care.
Medical Claims History
Looking at a business’s past claims is one way insurance companies predict future claims costs. As they consider your application, an insurance company will evaluate the following:
Ongoing large claims
When an employee has an ongoing health problem, such as cancer, they will need to file more health insurance claims for treatments, imaging, doctor’s visits, etc. These ongoing claims have a major impact on the overall cost of claims! In fact, only 20% of all claims are these large claims, but these ongoing claims equal 80% of the total claim costs.
Prescription drug claims
Prescription drug claims account for almost 20% of total medical costs. Employers with high numbers of employees who are reliant on regular prescription medicine will tend to have higher premiums.
Insurance companies pay for administrative processes associated with your account. This is a major component that drives up the cost of your group health insurance. These costs vary by carrier and by the level of service you desire. Some costs that impact your insurance carrier are:
Insurance carriers need employees to process the various claims they receive from doctors and facilities.
Negotiating and maintaining a network of doctors and facilities
Not all doctors, hospitals, and health care providers charge the same. And, in addition to the rates/fees charged for medical services, these negotiations require experts and lawyers for negotiation.
Sometimes carriers have in-person member services available to you around the clock, again requiring personnel to operate these services.
Carrier profit margin
Health insurance is a business that works to generate revenue.
Broker fees, commissions, and flat fees
Brokers and agents receive a part of the premiums that your business pays. You may not realize how much these costs are increasing your premiums
Hidden Administrative Costs
High-cost claims management
Paying for individuals that are supposed to ensure that your case gets managed and that details do not fall through the cracks.
Insurance companies and/or your broker should make sure that your insurance claims are being processed correctly and that you are not being overbilled. This process is not guaranteed and is often overlooked.
General wellness programs
Many group health insurance carriers include wellness programs intended to help its participants be proactive by encouraging a culture of wellness. This may include a wellness coach or fitness program. While this may feel like an added benefit to your employees, these programs tend to have extremely low participation. Even if your employees do not use the services these costs are often still added in your premiums.
Pharmaceutical company rebates
Many pharmaceutical companies offer rebates to group health carriers on certain drugs. These savings may or may not be passed on to you, the buyer. Unfortunately, many brokers do not bother with these savings tools.
Reinsurance for large claims
Group health insurance carriers do not carry all the risk for their clients. They, too, insure with other reinsurance carriers to help pay the costs of claims. Indirectly, you pay for this.
Lastly, the amount of risk you are willing to take has large implications on the cost of your group health insurance. Your “risk appetite” meaning how much risk you are willing to incur will have a major impact on your group health premiums.
A trusted insurance broker should help you determine your “risk appetite” and custom tailor your coverage to align with your appetite. Here are some of the considerations your broker should help you evaluate as you apply for group health coverage.
Being fully-insured vs. self-insured
Being fully insured transfers all risk to the insurance carrier resulting in higher group health premiums. Being self-insured incurs greater risk but also results in lower up-front premiums. Your insurance broker will give you tools to assess your level of risk tolerance and the cost-benefit of various options.
Size of the network
This has a substantial impact on your group health premiums. Large networks are usually more expensive while selecting restricted networks can result in 10% to 15% savings on your premiums. Your insurance broker should know the pros and cons of utilizing these different networks and help you make an informed decision about which network will provide your company with the best product and the best price.
Transferring risk to your employees
This also can result in lower premiums. The four general ways you can do this as an employer are:
- Premium Contributions
- Deductible levels
Of all the factors listed above, premium contributions by your employees and deductible levels will always have the greatest effect on the overall cost of your group health premiums.
Take Back Control of Your Group Health Insurance Costs
So where does that leave you?
While the costs of group health insurance may feel like they are skyrocketing, you do have a lot of control! Variables such as the number of employees you will cover, the services your policy will cover, and the amount of risk you accept will determine the amount of your insurance premium.
At Baily Insurance Agency, we help businesses explore their options as they develop their group health insurance solutions daily. We have a team of over 250 experts available to help you find the group health insurance resources that will lower your health insurance costs while still providing superior coverage for you and your employees.
One of the most misunderstood tools within group health insurance are HRAs. Used along with your group health plan, HRAs can help to decrease your group health expenses. We are continually helping clients incorporate this resource into their employee benefits program.
If you are unfamiliar with HRAs, you can learn more about this option in How Can I Control My Group Health Insurance Costs? The Benefits of HRAs.