Group Insurance

Overview

The majority of non-elderly people obtain health insurance through their employers, and most companies offer their employees “Group Medical Insurance.”

Group insurance is a contract between a company and a health insurance carrier. These contracts are typically sold through an insurance agent or broker. The insurance carrier tries to predict the healthcare costs of all the company’s employees based on the demographics of the group, and assigns an insurance premium to the company based on its expected healthcare costs. This premium is adjusted annually based on how the actual healthcare costs of the company related to the expected costs from the previous year. Therefore, if healthcare costs were higher than expected, the insurance premium increases for the next year.

Each year The Kaiser Family Foundation and Health Research and Education Trust publish a report called the “Employer Health Benefits Annual Health Benefits Survey.” This study provides extensive information on and analysis of employer-sponsored health benefits.

Participation requirements create challenges for many companies.

Companies purchasing group medical insurance coverage must meet their insurance carriers’ mandatory participation requirements. This means companies must generally have at least 75% of eligible employees elect coverage. These requirements are designed to prevent adverse selection, which is the enrollment of a disproportionate number of employees who incur unusually high healthcare costs. As health insurance premiums rise, companies are forced to contribute enough money to employee insurance premiums to ensure that they meet the participation requirements. Consequently, companies do not have full control of their health insurance cost.

Group medical insurance is expensive.

Group medical insurance premiums for single employee coverage have risen 90% since 2000 and often jump significantly year to year. Today it costs $392 on average to insure a single employee on a traditional group medical plan. Because of the previously discussed participation requirements, companies have difficulty controlling their medical insurance costs. As a result, only 63% of companies offer health benefits today.

The AARP commissioned a study called “Condition Critical: A Survey of Washington Businesses about the Future of Employee Health Care Benefits” that discusses the problems caused by the expense of group medical insurance.

Next, learn about individual insurance.