Understanding Group Health Costs

understanding group health costs text overlaying image of There are multiple reasons as to why it’s beneficial to offer group health insurance to your employees. Whether your company is big or small, having extensive group coverage will benefit you by increasing company morale and retention. As well as providing you with tax benefits. With so many providers and insurance options available, the process can be quite intimidating. Because of the complexity, it can be difficult to know if you’re getting a good deal. Or it may be hard to understand plan costs. To help give business owners a better understanding of what drives the pricing of these plans, we’ve created a guide that breaks down the factors contributing to the cost of group health insurance. 

Understanding the Basics

Before we dive into the specific factors that affect the cost of a group health plan. It’s important that you understand the basics behind the premiums. Just like how individual health coverage rates are determined based upon the policy holder and their history. Group insurance policy premiums are calculated based on the total employees in a company. More specifically, to calculate the overall group rate, providers will take each employee’s information and history to determine their individual premium. They will then add all of the premiums and average them out to get a group rate. After this is determined, generally the employer will take care of the monthly payments to the insurance company. And the employees will pay a determined amount for their own personal coverage.  


Usually, to determine whether or not a large company will be accepted for an insurance plan, they will have to go through an underwriting process. This is where insurance companies will take into account all of the medical history and other relevant information to determine the plan’s premium. Luckily for individuals and small groups (businesses with less than 50 employees), since 2014 the underwriting process is no longer used. This was implemented by the Affordable Care Act. Now instead, small businesses and individuals are guaranteed an issue of insurance. Overall, this is a positive rule change. Allowing small businesses to provide employees with insurance regardless of age, gender, health status and other factors. 

Small Employer Group Insurance Factors 

The price of a group health insurance premium can vary based on the benefits that are offered, the size of the insurance network and multiple other components. With that said there are only a few other main factors contributing to the cost:

The ages of employees and their dependents.

In general, the younger your employees are, the less you will pay in health insurance premiums. On the other hand, employees that are older are more likely to deal with ongoing health issues. Therefore, their premiums tend to be higher. Keep in mind that the rate will ultimately be determined by an average. But the younger your employees are the cheaper the premiums will be. As for employees that have family members under their coverage, their premium would be determined by their age as well as the age of the family members. If a family has more than three children under the age of 21, only the three eldest children will be taken into account when determining the premium costs. However, everyone in the family will be covered. 

Tobacco use of employees and dependents.

The Affordable Care Act states that group health plans can charge up to 50% more for health insurance premiums of tobacco users compared to non-tobacco users. This mark up in price can also be referred to as a tobacco surcharge. 

Geographic location of the business.

Location of a company affects the premium rates by factoring in how expensive the medical costs are on average in that area. Every state is responsible for determining their own rates. For example, premiums will likely be higher in a state such as California, compared to a state like Oklahoma. This is due to the cost of living, cost of healthcare and that the average wage is much higher in California. However, insurance companies cannot charge higher premiums based on the overall health of people in a geographical area. For example, if people are more overweight on average, in Dallas, Texas compared to Austin, Texas. Insurance providers can’t make rates in Dallas more expensive. Additionally, rates also tend to be higher in states and regions where insurers don’t have as much negotiating power with hospitals and doctors. 

Large Employer Group Insurance Factors 

There are more rules and factors to determine group insurance rates for large groups (50 or more people) compared to small groups. In addition to age, tobacco use and geographic location, the following factors are taken into account when looking at larger businesses:

The number of employees participating.

Though plan costs for small companies are not affected by employee size, larger companies are. In this case it will be beneficial to have more employees since the more employees you have, the more of a decrease or discount you will receive on your premium. 

Type of coverage.

There will be a difference in pricing, depending on if the coverage is fully insured or self-insured. Generally, with a self-insured plan the individual incurs more of the risk. But as a result they will have a lower premium. On the other hand, with fully insured plans, all the risk is on the insurance carrier, which will raise the group rate overall. 

Prior and ongoing claims.

Another factor for large businesses is their past or ongoing claims. Past medical claims are one way for insurance companies to better determine future costs of the insured company. Insurers will then look at ongoing large claims as claims like this will have a large impact on the overall costs. As employees with illnesses will need to seek medical attention on a more regular basis. Additionally, insurance companies will take prescription drug claims into account. So, if your company has a lot of employees who are reliant on prescription medication, your premium will tend to be higher. 

Employee gender.

Gender will have an effect on group coverage prices to a certain extent. For example, if a business’s employees are mostly women under the age of 40, premiums may increase. The reasoning behind this is due to the likelihood of some of these employees needing maternity and prenatal care. Additionally, women are considered higher risk compared to men. Due to the fact that research shows women tend to live longer and therefore may visit the doctor more frequently. 

Type of business.

Another thing that insurance companies take into account is the type of work that a business does or the sector that they are in. Naturally, businesses that have a greater likelihood of injury will have more expensive group health insurance rates. Some jobs that are considered higher risk include construction, emergency response, and logging. On the flip side, businesses that have a low injury risk such as banking or graphic design, will have less expensive rates on average.

Size of Network.

The size of the insurance network that your employees are covered by will greatly impact the cost of your desired insurance plan. The larger a network is, the more expensive the plan will be. While the smaller the network, the larger discount you will receive on your coverage. Be sure to keep in mind when deciding on a network, if it is too small. As it may limit the flexibility of service for some of your employees. 

Ways to Keep Costs Down

In order to keep costs to a minimum while still offering great benefits for your employees, there are a few things you can do:


  • Encourage your employees to take advantage of preventative health benefits such as annual check-ups, screenings, and dental cleanings. This will lower their risk of having to file claims for more expensive problems. 
  • Offer your employees a wellness incentive program. By rewarding employees, they will be more determined to stay healthy and active, ultimately reducing your premium cost. 
  • Offer a plan that includes telemedicine services. When you give your employees the flexibility to talk with healthcare professionals from the comfort of their homes, they will be more likely to engage in regular preventative measures. 
  • Encourage employees to pay attention to pharmacy benefits as they tend to be one of the biggest insurance plan expenses. 
  • Compare plans and insurance providers using Group-Health-Quotes.com. In an industry as competitive as insurance, you want to make sure that you are paying a fair price. The easiest way to do this is by using GHQ and our licensed agents. 

With so many group insurance plans out there, it can be overwhelming when trying to search for a plan that fits your needs and budget. Having the knowledge about the various factors that drive the cost of group insurance, will give you the best chance of finding an affordable plan. Additionally, our insurance experts at GHQ are here to help you find and personalize a coverage plan in your area. It’s easy, quick, simple and free. Compare and shop the top-rated group health insurance quotes today by visiting Group-Health-Quotes.com. Simply enter your ZIP code or give us a call at 888-571-0291.

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Sydney Berry

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