What influences employer-based health insurance costs?

Most people get their health insurance through an employer.

When determining health insurance premium quotes, health insurers gather information from employers, including employee ages, the employer’s industry and the past year of employee medical claims.

"They generally consider the average age and gender of the employee,” says Gary Franke, owner of Achieve Alpha Insurance in Bellevue, WA. “For example, women in their childbearing years are more expensive to insure but so are older men in their 50s or 60s, who are more prone to having a heart attack, stroke or other major issues.”

Employees often wonder -- why did my health insurance go up? Employer plan premiums tend to increase year-over-year based on the prior year's expenses.

“So if your employer group is healthier than average in the prior year, the monthly price you and your employer will pay will go up by less," adds Franke.

Group plans are also commonly priced using "composite rate quoting," according to Marshall Darr, vice president of marketing and a licensed broker with Decent, an Austin, TX-based health insurance administrator.

"An employer submits the ages for all employees and their dependents. The carrier then provides a single rate that averages out the risk across the company, so that everyone pays the same," Darr explains. "But companies that skew older will have more expensive premiums."

The type of health plan also influences costs, including premiums and deductibles.

A preferred provider organization (PPO) plan, which is the most common employer-sponsored health plan, usually costs more than a health maintenance organization (HMO) plan. Those plans often have similar deductibles.

Meanwhile, a high-deductible health plan (HDHP) usually has much lower premiums than PPOs and HMOs, but much higher deductibles. A deductible is what you pay for health care services before a health plan chips in. A high deductible means you’ll pay more when you need care than if you had an HMO or PPO.

Another factor that goes into employer-sponsored costs is how much the business pays. Employers usually pay more than half of health insurance premiums, but that can vary.

Kaiser Family Foundation estimated the employees pay an average annual employer-sponsored premium of $1,186 for single coverage and $5,547 for a family plan. Family plan premiums cost more than $20,000 on average, but employers pay nearly $15,000 of that amount on average with the employee picking up the rest.