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How does group health insurance work?

Here's how your premium is calculated under an employer's plan.

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By Gerri Willis, CNN personal finance editor

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NEW YORK (CNN) -- Ever wonder how your health insurance premium is calculated if you're covered under your employer's plan?

1. Know how it works

If you work for a smaller company, you may have noticed how much you pay for your health insurance differs from your neighbor who works for a larger firm.

The key is how group insurance is priced. When you're in a group plan, it's not only your health that you have to worry about -- it's the health of all your colleagues.

Basically, your company will obtain group rates from several different companies. In turn, those firms make their calculations based a number of factors to determine what kind of risk that specific workforce represents.

In general, group plans are less expensive than individual plans because the risk is spread over a wider array of people.

2. Policy ingredients

Age plays a large role in how much you shell out for health insurance each month. If your company employs a lot of older people -- say, late 40s or early 50s -- chances are your policy is more expensive than a company that hires a lot of college graduates, says Edward Kaplan of Segal Co., a human resources consulting firm.

Your company's claim history is also important in determining rates. If the company employs a lot of older males, premiums will likely be higher since this population is prone to more cancer diagnoses, hypertension, diabetes and heart attacks. On the other hand, companies with lot of women in their 20s and 30s will also pay more due to maternity and childcare costs.

Location is also important. For example, a hospital bill in New York City is much more expensive than other towns and states.

Finally, some industries are more prone to claims than others. Teachers, nurses and construction workers tend to file claims more frequently than retailers or technology workers, says Kaplan.

3. Companies with lower premiums

Larger companies tend to offer lower employee premiums simply because the risk is spread out. The smaller the firm, the more age and gender play a role in what you'll pay.

Consider a company with only 10 employees. If one or two of those workers have major surgery or give birth to a premature baby, for example, it's likely the group premium will jump significantly.

You may find smaller premiums at companies that put an emphasis on health and wellness through discounts on gym memberships or weight management classes.

-- CNN's Jen Haley contributed to this article.

Talkback: Are you happy with your group health care coverage? To top of page

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