Composite Rates are an easy way to fairly distribute differences in premiums across all employees in a group. If making each employee responsible for their own age-banded premiums would be too burdensome for some employees, Composite Rates can be used to facilitate cost-sharing among your employees. Here's how it works:
- Define the "Tiers" or different groups of employees that should all pay the same amount. This is typically a 4-Tier structure, or Employee only / Employee + Spouse / Employee + Dependents / Employee + Family
- Pick the "Tier Factor" or fixed ratio of the amount each group will pay e.g.: Tier 1: 1.0, Tier 2: 2.1, Tier 3: 1.9, Tier 4: 3.1 - this means that employees in Tier 2 will pay 210% of what employees in Tier 1 will pay
Calculate the composite rates as follows:
1. Multiply the # of employees by the Tier Factor in each tier
2. Sum those numbers across all tiers. Call this "X"
3. Divide the total group premium by X. Call this "R"
4. To calculate the composite rate for each tier, multiply "R" by the tier factor
[See the attached spreadsheet for a calculator]
In some cases, some carriers will also guarantee composite rates for your group (based on their specific tier factors), meaning that newly added employees throughout the year will be eligible for a fixed rate regardless of age.
EE = employee
EE+SP = employee_spouse
EE+CH = employee_child or employee_children
Family = family