Group Health Insurance - Varying Premiums

[sbopfa]

Hello everyone,

This may seem like a basic question but I have been unable to find an answer on the internet or through the search function on this forum. Can an insurance company provide different rates for individuals within a group plan so that the participants can each pay according to their risk profile. For example, the company wants to be fair and pay $500 towards each employee's monthly premium. But the 25 year old male's premium might only be $250/mo while the 60 year old male's premium might be $750/mo. In this case, the 25 year old would receive $250/mo in addition to his $250/mo premium that can be used for an HSA contribution while the 60 year old would have to pay an additional $250/mo for his coverage on top of the $500/mo employer portion. This would be preferable to a blended $500/mo premium that punishes the 25 year old and benefits the 60 year old. Does this make sense? I would appreciate any feedback or resource links.

Thanks,

Sam

 

[Ann H]

Hello everyone,

This may seem like a basic question but I have been unable to find an answer on the internet or through the search function on this forum. Can an insurance company provide different rates for individuals within a group plan so that the participants can each pay according to their risk profile. For example, the company wants to be fair and pay $500 towards each employee's monthly premium. But the 25 year old male's premium might only be $250/mo while the 60 year old male's premium might be $750/mo. In this case, the 25 year old would receive $250/mo in addition to his $250/mo premium that can be used for an HSA contribution while the 60 year old would have to pay an additional $250/mo for his coverage on top of the $500/mo employer portion. This would be preferable to a blended $500/mo premium that punishes the 25 year old and benefits the 60 year old. Does this make sense? I would appreciate any feedback or resource links.

Thanks,

Sam

Hi Sam -

This question comes up often. A lot of this depends on which state you are in. Usually, group premiums are "blended" (otherwise called "composite" or "averaged"), so that the rate is the same irregardless of the employees age, gender, smoking status, or health status. So, for instance, there is a rate for employee-only, a rate for employee+spouse, employee+child(ren), and employee+family. In some states, for groups with less than 10 employees, the rates are age & gender rated (for instance there would be a lower rate for a male age 25 than for a male age 60.) For your plan to work, the rates would have to be age and gender rated.

In each state, there is an employer contribution requirement. Often, the employer is required to contribute at least 50% of the employee-only premium.

In each state, there usually are non-discrimination rules. Most often, the states and the insurance companies require the employer to contribute a like amount, no matter what the employees age, gender, occupation or job class, etc. The "like amount" can be a flat dollar amount or a percentage, so long as it meets the minimum contribution stated above. The amount can be different for employees and dependents (for instance the employer can pay 80% of the premium for employee-only coverage and 0% of the premium to add dependents). However, the dollar amount or percentage cannot differ based on age, gender, race, ethnicity, religion, etc. That's a lawsuit waiting to happen.

I hope I've helped. Seek advise from a local expert. And... here's my disclaimer. This is not legal advice. Since I do not know what state you are in, I may not even be a licensed agent in your state. The answer I just gave you was intended to be very general, and intended to help you identify some issues so you can get advice from an expert in your state.

 

[sbopfa]

Hi Ann,

Thank you for addressing my question. I am in the State of IL. I found this resource that lists a lot of state specific protections:

statehealthfacts.org/profileind.jsp?cat=7&sub=86&rgn=15

I am trying to educate myself as much as possible before meeting with a local agent. I have received two preliminary quotes so far based upon general employee age and coverage information. I was presented the data in two different formats.

One local broker presented the numbers for various companies as a blended rate whereas the quote I received from NFIB (Aetna) listed individual participant amounts in each plan which were added up to a total cost for that plan. And this was repeated for each of the three plans that they presented to me.

Neither party was available this afternoon to address further questions so I am online trying to find answers to some of these questions before next Monday.

We are dealing with a situation where the company has provided a stipend of $500 per employee and everyone was responsible for getting their own policy. The 25 year old is currently paying ~ $200/mo for an HSA PPO. The 60 year old is currently paying ~ $650 for an HSA PPO. We have several people now wanting a group policy but you can obviously understand that the 25 year old in this example is balking at the idea. I am trying to find a solution which would provide the benefit of having the group but still allowing for individuals to pay premiums somewhat close to what they are currently paying.

I hope that clarifies more of my situation and hopefully you can offer up some additional suggestions about how you may have dealt with situations like this before. And I totally understand that you are licensed in a different state and that I should ultimately consult with someone locally.

Thanks again,

Sam

 

[leevena]

There is not enough information here for me to give you a definitive answer, so please excuse me. A couple of things come to mind.

I am not in Illinois, so I do not know your small group regs, but as a general rule of thumb, Ann is correct in that you could see blended rates, single set of rates, etc. It appears that your group may be a small group, say under 20, so it is very possible that you will receive rates banded by ages. It is also possible to have some plans "blended" so that you get one rate regardless of the ages.

Seems to me that you should take a step back and consider what type of program you would like to offer; either a group plan or individual plans. Both have their pro's and con's.

If you institute a fully-insured, group plan you should consider the following. You will need to follow the carrier rules for minimum employer contributions (usually 50% or more)and minimum employee participation (usually 75%). To accomplish this you will need to pay attention at what the single cost per employee will be AFTER the employer contribution. It would be preferable for the employer to institute a contribution policy of "100% contribution for single coverage". Also keep in mind, that beyond the basic carrier requriements (contribution/participation, etc.) a fully-insured plan can legally discriminate with respect to plan eligibility and benefits. The new health reform law (PPACA) will require fully-insured plans to start following the non-discrimination rules (Section 105(h) that self-funded plans have been requried to follow, but the implemenation of that provision has been delayed.

If however you decide to go the route of providing a lump sum of money and allow purchase of individual plans, you will have a series of other issues. The first I see is that if your plan is "informal", meaning the employer has decided to give dollars without the actual formalization of the program (written documents, corporate adoption of a plan, etc.) you don't have a qualified plan that will allow for employer deductions of the amounts and the employees would be subject to additional taxes on the contribution.

If in fact you have all HSA plans being purchased, you will also have an issue with the comparability rules for employer contributions. These rules require the employer to contribute a "comparable" amount by coverage level (single, family). So if the employer gives the 25 year old a smaller amount than the 60 year old, you have a comparability problem.

This can be satisfied if you have a Section 125 (cafateria plan) and the employer makes the contribution through the plan. The comparability rule is not in play because of the Section 125.

As I said earlier, there may not be enough information for us to answer all your questions, hope this helps.

Have a good day.

 

[ramunsyah]

Hello Sbopfa:

My name is Ramunsyah and I am an agent of Allianz Life Insurance in Indonesia.
Regarding to your questions, I agree with information from Ann and Leevna. As you know in my side here in Indonesia is similar case.
If you go for the Group plan with minimum 10 employees, the benefit of the services to the employee get is much much more and faster. Whereas, if you go for the Individual plan, the benefit of employees are not as much as the Group plan.

This is because the Group Plan has more flexibility. It has a crossed subsidized for the Insurance Company for the employee who claim more than others.

My apology if this is not much help for you. The point I want to share is the concept or the systems to compare between Individual and Group Plan for Health Insurance.

Thank you and glad to know you all in this forum.

Rgrds,
Ramunsyah

 

[Cory]

Ann nailed it...this is why it's based on percentage.