Understanding claims and health insurance premiums

Q. I have a health insurance policy for my small business. There are three employees and me. One employee was just diagnosed with breast cancer. Will this hurt premiums for next year and in the future?
— The Boss

A. We hope your employee is on the path to good health.

The concept of insurance is to spread the risk among a large population, and that holds true in the conventional small group market, said Ed Gaelick, a Chartered Life Underwriter and Chartered Financial Consultant with PSI Consultants in Glen Rock.

Consequently, small companies with a particular carrier, a specific plan design and the company location would be “pooled” with other like companies, Gaelick said.

“This then brings the employee count up from three to thousands,” he said.

Annual renewals are based on many things — including claims — so your claim component would be based on the larger pooled population, he said.

“This means your specific experience — a cancer situation that will likely result in large claims — would adversely affect the pool and indirectly affect your groups renewal — or next year’s premiums — but minimally since the pool has thousands of insured members,” Gaelick said.

Other renewal components are “trend,” or medical inflation, and demographics, which include census data and the location of your company,” he said.

“All these components are factored into establishing a groups renewal,” Gaelick said. “Each year will be looked at independently of other years.”

Karin Price Mueller writes the Bamboozled column for The Star-Ledger and she’s the founder of NJMoneyHelp.com. Click here to sign up for the NJMoneyHelp.com weekly e-newsletter. Like NJMoneyHelp.com on Facebook and follow it on Twitter.