All About Group Health Insurance

What is Group Health Insurance

As the same suggests, group health insurance is insurance provided to a formal group like employees working in an organization or members of society. Group health insurance is most commonly used by companies for their employees, which is why you’d often find people using the word ‘group health insurance’ and ‘employee health insurance’ interchangeably. 

Group health insurance can be also extended to people directly or indirectly related to the group. For instance, group health insurance for employees extends to their spouses, children, and even parents.

Why Group Health Insurance

Group health insurance is a suitable choice both for employees and employers.  One of the most basic benefits you can provide to your employees is adequate health insurance coverage. Study reveals that employees value health insurance as the most important benefit.

Here’s what makes providing health insurance, especially group health insurance, a strategically beneficial choice for employers: 

1. It boosts employee engagement: 92% of employees look up to employer facilitated insurance plans.  As a company, when you offer these much needed health benefits to your employees, they invariably become more devoted to the work and more loyal to the company. Investing in employee health has three-fold benefits for you: 
2. It is a cost-effective option: It’s a market standard that any bulk purchase is always cheaper per unit, as compared to individual purchases. Group health insurance also works the same way. Employers looking to cover healthcare costs for their employees usually have two options. They can either invest in a group health insurance policy or they can reimburse individual health expenses. The latter is not only cumbersome but a costlier choice too.
3. You save on taxes: In India, group health insurance is 100% tax-deductible. That means you get complete tax deduction benefits under various sections of the Income Tax department of India when you pay for your employee healthcare. The entire amount that you pay as the premium gets accounted for as a business expense. 

Not just employers, but employees stand to gain a lot from a group health insurance policy. Here’s how:

1. It’s a No-Cost or Low-Cost Affair: More often than not, with group health insurance premiums being paid by employers, employees get health insurance cover at no cost at all.‍
2. There’s no waiting period: An employee gets covered in the group health insurance policy of the employer from the day he joins the company. This is completely contrasting to individual insurance wherein there’s a minimum waiting period of 30-90 days.
3. Pre-Existing Diseases are covered: If your employee gets insurance on their own, their pre-existing will most likely not be covered. Even if your employee buys an expensive policy, he’d get covered for pre-existing diseases only after 3-5 years for being covered under the same policy. On the contrary, group health insurance has the facility of including your employees’ pre-existing diseases from day 1 itself. 
4. Enrolment and insurance claims are easier: For group health insurance, your employees don’t have to undergo any initial screenings or formalities to qualify for the insurance. They automatically get enrolled by being a part of your company. Not just that, given that the partnership is between insurance providers and employers, claims are settled in a speedy and hassle-free manner because of the legacy and goodwill of the employer. 

In addition to providing all the above mentioned benefits, GHI also combats the problem of adverse selection. 

Group Health Insurance and Adverse Selection

Adverse selection is defined as an increase in the chance for a person/organization to take an insurance because they believe their immediate health risk is higher than what they would pay as insurance premium.

Imagine an incidence where a person doesn’t have a health insurance policy and is diagnosed with a disease. The doctor suggests him/her to go for a surgery which is quite expensive. Looking at the problematic situation, he/she would choose to buy a health insurance policy without disclosing the disease and get the treatment covered under insurance.

Waiting periods to solve adverse selection

To avoid this problem of adverse selection, retail insurance products add waiting periods. A waiting period is the amount of time an insured must wait before some or all of their coverage comes into effect. 

Here are the 4 types of waiting periods that are usually applied to health insurance policies>

However, GHI waives off all the four types of waiting periods, i.e. one can make a claim on day 1 for any condition. The reason insurance companies provide above benefits for group cover is that it assumes that the group will have no selection in terms of who is getting covered in the policy. 

Here’s why adverse selection is not allowed in insurance, and how GHI tackles it>

Group Health Insurance V/S Individual Health Insurance‍

When faced with the choice of providing an umbrella cover for all their employees as opposed to letting employees choose individual plans and reimbursing for it, group health insurance is a better choice. 

Group health insurance is more beneficial for both employees as well as employers as they are more holistic in coverage, provide a lot more customization, and have no waiting periods involved. Not just that, as an employer, it would be far easier to manage a single group health insurance policy than tracking and reimbursing for individual plans. 

In addition to that, group health insurance is also a cost-effective option. Being a bulk purchase, they are much cheaper than individual plans. 

Read more about why group health insurance is a better choice than individual insurance>

GHI VS Medical Reimbursements

Another dilemma that companies often have while deciding on health cover for their employees is whether to simply reimburse those employees who incur some medical costs or to provide insurance cover to each and every one of them. After all, the cover for those employees who don’t actually incur any medical costs in the year, goes down the drain, right?

Yet, choosing group health insurance is preferable for two major reasons:

1. Medical Reimbursements are limiting: Employees can only be compensated up to a limited amount per year which is usually ₹15,000. Post that, they’d have to pay tax on that amount and don’t benefit entirely from the reimbursement. Not just that, the reimbursement process first and foremost requires your employees to make the payment and get reimbursed for it later. They don’t enjoy the benefit of cashless treatment that comes with a group health insurance policy.
2. ‍Administrative cost is high for reimbursements: Any amount that you may save on premiums by providing reimbursement is compensated by the administrative costs of managing the reimbursement process. You first need to set up a process to collect bills, another process to verify the bills, and another to issue payments against those bills. All in all, you’d probably have to dedicate staff just to overlook these reimbursements. Group health insurance, on the other hand, is much easier to monitor and track. 

Read on to understand why choosing GHI is a more viable option>

Premium calculation

There are  6 key factors that decide that premium costs for health insurance plans you buy for your employees: 

1. Age of your employees: Premium costs are directly proportional to the average age of your employees. The higher the average age, the higher your premium costs will be. 

2. Number of members: When you decide on the type of coverage (E-plan, ESC-plan and ESCP-plan), you invariably decide the number of members covered in the plan. The more people you cover, the higher the cost will be. 

3. ‍Sum Insured: Sum insured, too, impacts the premium costs but the progression is not linear there. For instance, if the premium for ₹50K SI is ₹100, a premium of ₹10L SI would be ₹513.
   
4. Add-ons on the plan: Today, group health insurance plans come with additional benefits like personal accident cover, annual health checkup, and OPD cover. Each add-on that you choose comes with some additional costs. 

5. Past-claim experience: For those companies who’ve had some insurance cover in the past, insurers look at the number of claims in the past to decide the insurance costs. Higher number of claims lead to slightly higher premium costs. 

6. Nature of the job: Insurance cover for companies in sectors with known high health risks have different premium costs than the rest. 

Read on to understand how each of these factors affects the cost of your group health insurance plan>

Tax Implications

Section 17 of the Income Tax Act defines the health insurance premium that employers pay as a ‘profit in lieu of salary”. That means that the premium you pay would be considered as a business expense and you don’t have to pay any tax on that amount. 

However, if your employee is bearing some cost of the premium, then they get a tax deduction as mentioned in Section 80D of the Income Tax Act. According to it, your employees can claim a tax deduction up to ₹25,000 per year for any installments they pay as health insurance premiums. In addition to that, if they pay a premium for guardians/parents, they are additionally qualified for deduction up to ₹25,000 every financial year. 

Read in detail about the tax implications of group health insurance>

Indian Government Regulation

Health insurance has become a norm in developed countries like the US. Infact, the US government mandates all employers who have 50 or more employees to provide a health insurance to all their employees.

But India didn’t have any such mandate or regulations. With the recent Covid-19 pandemic, the Indian government started taking initiatives to ensure that the entire population of India has some sort of health insurance. On that front, the government announced on April 4th 2020 that the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana would cover all treatments of Covid-19.

‍On April 15th 2020, the government took another bold step towards that goal of getting the Indian population insured. The government of India, as part of order No 40–3/2020-DM-I (A), issued as part of the consolidated revised guidelines by ministry of home affairs, made it mandatory for all employers, who resume functioning post COVID-19 lockdown in the country, to provide medical insurance to their employees. As per clause 5 of Annexure — II of the revised guidelines and standard operating procedure for social distancing for offices, workplaces, factories and establishments, medical insurance for the workers is to be made mandatory.

Read all about the IRDAs new regulation>

Disadvantages

One disadvantage that group health insurance is that you are covered only until you are a part of the group. So, an employee’s cover ceases as and when he leaves the company. However, employees switch ships only after considering the benefits offered. So, they’d be covered in the group health insurance policy of the next company they join.