Question on Employee Premiums

[Scott]

A company has grown in size to where the insurance carrier is changing from age-related premiums to composite premiums. As a result, the company is considering restructuring how it charges employees for premiums. It is considering paying 100% of employee-only coverage, but requiring employees to pay a portion of spousal or family coverage. The cost to each employee would be the same for spousal coverage, but for family coverage the employee's cost would increase for each child. So, for example, an employee with 4 kids under family coverage will pay more than an employee with 2 kids under family coverage. Any reason this can't be done?

[leevena]

Could you please verify something for me? You said that the new rates will be composite, so will the family rate (employee+spouse+child or children) be one rate or mulitple rates depending on if the employee has more than one child. Hope this makes sense.

[Scott]

The insurance company bills the company using one rate for family coverage, regardless of how many children. So, for example, the total premium due the insurance company may be $300 for employee only, $400 for employee + spouse, and $500 for employee + family, and the company will charge the employees $0 for employee only, $200 for employee + spouse, $250 for employee + family with one child, $300 for employee + family with 2 children, etc.

Does that help?

[GBurns]

No.

You first state that "The insurance company bills the company using one rate for family coverage, regardless of how many children." Then you state that "the total premium due the insurance company may be ... " but show varying amounts.

If there is "one rate" How can there also be varying rates?

[Scott]

Sorry if I was not clear, but the insurance company charges the company one rate for employee + family, regardless of the number of children--in my example, it's $500. The other rates I cited in my example are for other types of coverage. Perhaps that's what made it confusing. I guess my question boils down to this: Is it OK for an employer to charge its employees different rates for employee + family coverage depending on the number of children, when the insurance company's premium structure for such coverage doesn't take the number of children into account?

[Larry M]

You probably could require an employee to pay an additional premium for each dependent.

However, you are adding an administrative complexity and expense to your program.

Also, you are setting yourself up for problems where the employee forgets to add (or subtract) a child to his/her payroll deduction. How is the carrier going to know whether an individual is covered?

How does the policy define covered dependents? Does the policy require a contribution for each dependent or, most likely, does it just say, the employer may require contributions fromemployees for dependent coverage. If the latter, you may have difficulty excluding a child from covereage if the employee has paid for at least one dependent.