Designing Company Health Insurance For Your Startup Team

• Introduction
• Designing a good health insurance plan for your employees
• How much budget should you allocate?
• How are premiums added?
• How to negotiate a good plan and cost with the insurer?
• How is a startup deal different from a large company deal, for an insurer? 
• What are the alternatives for small startup groups?
• What other insurance plans should startups explore for their employees?

Imagine a young techie just out of college moving to a large, expensive city like Bangalore for their first job with your dynamic startup. While they soon become a star performer at your budding enterprise and make a decent earning - they also believe in spending their money as soon as they make it - so they have no dependable savings, yet. 

What happens in the case that they become unwell and need hospitalisation? Even worse - meet with an accident? Who takes the financial burden?

As a well-meaning startup that cares for the employee, you pick up the tab - and this becomes an unplanned expense. 

It is to mitigate such financial risks and unexpected outflows - that startups should consider offering their employees a health insurance policy. A health insurance policy will cover the costs of any major hospitalisation and treatment that employees might need, and through this non-cash benefit - the startup can ensure that their team gets access to quality healthcare whenever they need it. 

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Considering a team size of around 25 employees, here are some basic guidelines to create a good employer health insurance plan for your startup. 

1. Sum insured: Every employee will need a basic sum insured of at least INR 3-5 lakhs. In addition to this, you can also choose a Corporate Floater plan, of around INR 20 Lakhs - this will cover any major expenses across employees, in the year. If your employee group is slightly older (say 28-37 years) - they might be married, and you’ll need to cover the spouse and children as well. In such cases, you might also want to consider a basic maternity cover of INR 50,000. 
2. Skip OPD cover: OPD covers pay for those medical expenses that do not result in hospitalisation of the patient. These covers could get very expensive - especially when the group size is small. So, for a small startup team - you should skip this and keep your premium relatively low. 
3. Skip parents insurance: Elderly parents, owing to their age are a high-risk category in health insurance - since they’re more likely to make (a) a higher number of claims and (b) higher value of claims. This risk-potential might skyrocket premiums for the entire group, and so - it might be better to avoid covering parents of employees under your startup’s insurance plan. Further, if the employee group is relatively younger (<28 years old) it’s possible that their parents have their own employer insurance, and do not need to be covered by their children’s plans. 
4. Day one cover for all conditions: You should get a cover for all conditions from day one. Since it’s less likely that a young age group might have too many pre-existing diseases, you should easily be able to negotiate removal of waiting periods for all conditions. This will ensure that every employee that joins from now on as well, gets health insurance from day one. 

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A typical health insurance cover should cost around INR 15,000 - 20,000 for a sum insured of INR 5 Lakhs per person. Hence for a team of 25, you should allocate a budget of INR 5 lakhs for the group’s health insurance, per year. 

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The first year’s premium is based on the standard retail rates that the insurer charges for their health insurance cover. 

However, from next year two factors determine the renewal premium.

1. Total claims made in the last year, from your employee group: For a group size of 25, you can estimate one claim in a year. And even if that person claims the entire cover amount of INR 5 lakhs - your overall premiums paid will still cover this. However, if the total claim amount goes beyond the INR 5 lakhs premium that your company paid - the renewal premiums will change. 
2. Change in employee strength: As your organization grows and adds new people to the team, the overall renewal premium will increase in line with this increased team-size. However, the premium per person might remain the same. 

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The best way to get a good first year’s premium is to look at the insurer’s retail rate, and ask for a discount on that cost. Insurers are likely to reduce cost for a group on the basis that they get a number of policy sales for no additional marketing cost. But remember - you’re also negotiating to get a cover from day one - for all pre-existing diseases, and this attracts a higher premium. 

For a renewal premium negotiation - simply take a calculation of the total premiums paid versus the total claims in the previous years - to negotiate your cost. After a few years, you should make note of the last 3-4 years’ details (consider more years, if the calculation benefits you) to make your case for why your company should get a lower premium. 

From the insurer’s standpoint an 80-90% ratio of claims : premiums is a good deal, and they’d like to maintain that ratio in the long-term. To ensure this you should continue with a single insurer for as long as possible - and not simply shift between companies. 

In fact, you should only shift your insurance company if their service is very poor - and never on the basis of better/worse premiums alone. 

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A large organisation with say over 100,000 employees has the advantage of homogenisation. That means that the group cancels out the overall risk from any high-risk individuals (older with a medical history, habits, pre-existing diseases etc.) with low-risk individuals (younger, healthier). 

As a result - their claims: premiums ratio is stabilised. Even if a large number of individuals make claims in a given year - the premium change it affects would be minimal. For large organisations therefore, the premium increase is often set at 8-10% yearly, and it works for both the company and the insurer.

As opposed to this, in a small group - if instead of one person, three people make a claim in a year - the premiums can skyrocket immediately! 

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One good strategy you should consider is to offer a fixed benefit - a Health Insurance Premium Reimbursement, towards the employee’s personal health insurance policy. This amount can be claimed by the employee by presenting a receipt for the premium paid. 

Based on the employee’s family - a budget of around INR 15,000 - 20,000 (for unmarried individuals) or INR 25,000 - 35,000 (for a couple + children) could be allocated. 

This will ensure two benefits - 

1. Employees pick up the habit of investing in health insurance: Your employees will learn the importance of having a personal health insurance plan, and...
2. They can keep the plan running even after they leave your organization: Typically, employer insurance plans are group policies that end, as soon as the employee leaves the organization. With this alternative approach, the employee is free to continue paying premiums on their own, and reap benefits of their health insurance in the long-run. 

In case the allocated amount is less than the employee needs, they pay the difference. In case it is more, the excess is accounted as taxable income. 

What’s the catch? 

Surely, there’s a catch with this approach too. The main challenge with personal health insurance plans is that they come with standard waiting periods for certain conditions and a 48-month waiting period for pre-existing diseases. Most individual policies might not even cover maternity (or could cover for very high premiums, making it unaffordable).  

Having said that, the benefits clearly outweigh the drawbacks - and having a personal health insurance cover is way better for a young person in the long run - compared to a company insurance that ends with their employment. 

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In addition to a good health insurance cover, startups should also invest in a Personal Accident cover. Given the higher rates of two-wheeler usage amongst the younger crowd, and the risks associated with it - a Personal Accident cover is easily one of the most important investments you could make, for your employees. 

A PA insurance of INR 25 Lakhs could cost just between INR 2500 - 3000 in premiums, per person per year - and covers accidental death, permanent total disability, permanent partial disability and temporary total disability. In addition to these, this policy could also cover emergency medical expenses for outpatient treatments. 

This, along with a good health insurance plan will ensure that your employees get access to quality treatments and care, and protect their financial security despite major unexpected healthcare expenses. 

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In conclusion

After painstakingly identifying, training and nurturing a good candidate - the last thing you want is that they pack their bags and leave the city, just because they cannot afford a treatment there. It is known that the ecosystem has an acute shortage of talent, and you truly cannot afford to lose a good employee just because they’re unwell. 

Helping them cover their expensive healthcare needs adequately, will give them the peace of mind, so they focus on what matters most - the growth of your company.

 It is a small investment that goes a long way!  

Got a specific question on how to design a health insurance policy for a company? Drop it in the comments below - or post a question on the Beshak Insurance Forum and get responses from health insurance experts, in 6-8 hours!