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, 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.
- Next, choose the "Tier Factor" or fixed ratio of the amount each group will pay. For example, Tier 1: 1.0, Tier 2: 1.5, Tier 3: 20, and Tier 4: 2.5. In this scenario, employees in Tier 2 will pay 150% of what employees in Tier 1 will pay, employees in Tier 3 will pay 200% of what employees in Tier 1 will pay, and employees in Tier 4 will pay 250% of what employees in Tier 1 will pay.
Calculate the composite rates as follows:
1. Multiply the number 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.
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