Group Health Insurance: Costs & Premiums Explained

If employees are the backbone of an organization, their health obviously becomes paramount. After all, only physically and mentally healthy employees can optimally perform their tasks and duties. So naturally,  a group health insurance plan becomes a crucial employee benefit. But, how much does a group health insurance plan cost? 

We’ve explained the factors that can influence group health insurance costs, how costs are split (or not), and if the premiums can be lower. All of this and more, are in this blog. Read on! 

What factors influence group health insurance costs?

Group health insurance costs in Canada are largely impacted by these five factors:

1. Group size and health
2. Employee’s age and gender
3. Claim history
4. Occupation type
5. Plan selection
6. Group composition

Group size and health: The size of an employee pool influences premiums, with larger groups often enjoying lower costs, meaning group health benefits for small businesses come with higher premiums compared to larger companies. However, pre-existing conditions within the group can make these expenses vary. For example, a company with 200 employees might pay lower premiums per employee compared to a small business with only 20 employees. 

Employees’ age and gender: Group health insurance premiums often take into account the age and gender distribution of employees. For instance, the premium for employees over the age of 50 will be higher as compared to the younger employees because aged employees have a higher risk of illness compared to young employees.

Claim history: If an organization has a higher number of group health insurance claims in the past, their premium will be higher upon plan renewal. This is because a higher number of claims increases the risk an insurer takes when offering a group health plan.

Occupation type: Office-based occupations generally incur lower premiums because the risk of falling sick or of an accident is far lower than in hazardous sectors like construction.

Plan selection: Depending on how comprehensive a group health plan is and the benefits it offers significantly impact the pricing. For example, if a plan offers a Health Spending Account (HSA), this might raise premiums compared to a basic plan that covers only essential medical expenses.

Group composition: Employers may offer tiered benefit plans that provide different levels of coverage based on seniority or job level. Executives or senior management may have access to premium plans with enhanced benefits, while junior staff members may be enrolled in standard plans with basic coverage.  

Who pays for a group health plan?

Most often, an employer purchases and pays for a group health plan in Canada. However, there are different ways one can pay for a group health plan:

• Employer-sponsored: In this setup, the employer covers the entire premium for the group plan, without any contribution from the employee. While this is often preferred by employees, it’s also the most expensive option for employers.
• Cost-sharing: Here, both the employer and the employees share the cost of the plan. Commonly, the arrangement is set at 80/20, with the employer covering 80% of the premiums and the employee responsible for the rest. 
• Additional coverage cost: Employers can choose to cover the entire premium for the basic plan while the employee covers any additional benefits. For instance, the employer may cover health and dental benefits, while the employee is responsible for long-term disability (LTD) benefits and life insurance. This allows for a more customized approach to benefit allocation based on the employer’s and employees’ needs and preferences.

How does one choose between these cost-sharing options?

The choice truly lies with the employer! Depending on organizational budgets, goals, and employee requirements, employers can choose to pay for or split the cost of group health insurance premiums. 

Let’s understand this with an example: A startup may opt for a cost-sharing arrangement, with the employer covering 70% of the premiums to make it more affordable, while still providing valuable benefits to employees. Alternatively, a larger corporation may choose to pay for a comprehensive group health insurance plan without any contribution from the employees.

How much does group health insurance cost?

Group plans are often offered in different packages that are priced differently with some that cover more benefits than others. Most insurers categorize group health insurance plans in three ways: basic, advanced, and premium.

To help you understand how much you’ll pay, we’ve created a table with the coverage costs per person per year in an organization for a group health plan with different benefits:

How can I enroll in group health benefits?

Once hired, you need to enroll in the group health insurance plan within a deadline. If this deadline is missed, you might have to wait until the annual enrollment window is open. Typically, a new employee who joins after the enrollment period is over has to wait for a period of 30-90 days before they can get group health benefits. This period is designed to ensure a degree of commitment from the employee to the employer before benefit enrollment.

Some group health insurance plans offer supplemental benefits like dental and vision care. During the enrollment process, you can choose any additional benefits you might want and add your family members and/or dependents.

Who pays for group health insurance?

Different organizations have different rules when it comes to paying group health insurance premiums. Generally, there are three ways in which the premiums for group health insurance are paid. These are: 

1. Employer-sponsored plans: The employer pays the entire cost of the group health benefits plan and the employee is not expected to contribute.
2. Cost sharing with employees: An employer and their employees split the premium costs at a predefined rate. Commonly used splits are50 percent each or 70 percent by the employer and 30 percent by the employee. These arrangements can differ depending on the specific plan and the agreements between the employer and their employees.
3. Employee add-on costs: If employees want to add dependents or get an advanced plan with additional benefits, they have the option to pay the extra premium

How much do group health plans cost?

The cost of a group health plan varies depending on the type of package an employer purchases with options such as basic, advanced, premium offering different levels of coverage. Each package offers different coverage and depending on who is covered, the premiums can vary. For small businesses, a benefits plan can cost about 5-15 percent of the total payroll on an annual basis. 

In the following table, we’ve included representative average premium costs for a group health insurance plan based on who is covered, the plan type, and coverage options: