Average Cost of Employer-Sponsored Health Insurance

Offering a cost-effective employee benefits package is something every organization, big or small, thrives for. With rising healthcare costs, affordability has become a major concern for employers offering group insurance plans to their employees. Though insurance is widely offered by larger and established companies, small and medium businesses are still struggling to provide the best products at competitive rates. A recent study also proves that the average cost of employer-sponsored health insurance in India is on the rise.

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Group Health Insurance and the Three Parties Involved

Group health insurance has been a win-win for all, the insured, the policyholder, and the insurer. Benefits to the policyholder (the company or employer) and the insured (the employee) are many and are frequently discussed. Even on a macro-level, a group health plan has a major contribution to the penetration of the health insurance segment in India, especially in Tier 2 and Tier 3 cities.

For the insurers, group insurance policy in the past meant receiving a good portion of a high premium at one go. However, until recently, the situation has become tricky for insurers. Even though the average premium received in this segment is high to support the cash outflow, the number of claims has increased fourfold. Insurance companies are thus facing challenges to offer services at competitive rates. Let us look at the prime factors of challenges influencing the increase in the average cost of employer-sponsored health insurance.

Factors Influencing the Increase in the Average Cost of Employer-Sponsored Health Insurance

A report released by Mercer Marsh Benefits mentions that group health insurance costs are expected to increase by 15% in India in 2022. The main factors that influence the average cost of employer-sponsored health insurance premiums are:

  1. Rise in medical inflation: The increase in the cost of medical treatments has a direct impact on the average cost of the group health plan. The premiums are increasing, making this segment highly competitive.
  2. Lifestyle changes leading to increased frequency of hospitalization: Lifestyle diseases are on the rise in recent years. Instances of hospitalization due to such diseases have grown, leading to higher claims.
  3. The COVID-19 pandemic has burdened the insurer with heightened frequency and severity of claims: As per a report by Mercer Marsh Benefits, 2022, COVID-19 and respiratory and gastrointestinal conditions experienced the most frequent claims at 34% in 2021. The higher the frequency and severity of the claims, the higher will be the average cost of insurance.
  4. Absence of standardized cost of treatments and procedures: It is a known fact that there is an absence of standardized cost of treatment, procedure, and consultation. The cost varies based on location, type of facilities the hospital provides, etc. 
  5. Increase in competition leading to price war amongst insurers: With this segment providing an immense opportunity for growth and market expansion, price and added features both play an equal role to attract companies. Insurers are trying hard to provide plans that are over and above traditional insurance plans at a reasonable price, leading to a price war among the insurers.

Conclusion

Employer-sponsored health insurance is now viewed more as an investment than a cost by the employer. Employee well-being is now given priority to motivate, retain and improve employee productivity. Group insurance policies are carefully designed based on the employee's need, demographics, experience, existing claim experience, etc. This hence ensures that the cover provided is optimal and at a reasonable cost.

Written By: PolicyBazaar - Updated: 21 October 2022
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