Understanding how health insurance rates are determined makes it a little easier when paying premiums. The majority of Americans obtain their health insurance through the work place. With the economy in a continued state of flux you are seeing a continued rise in premiums. For example the Kaiser Family Foundation Employee Health Benefits that there was an 8% – 9% increase in cost just for the year 2010. When they took a look at a longer period of time they found an astounding 113% just since 2001.
Having an understanding of how determinations are made for small groups and what qualifies as a small group can help to alleviate some of the anxieties surrounding insurance cost. Small group rates generally are determined by the number of employees that a company has. This is usually when a company has anywhere from two to fifty employees. There are some states that have an exception to this rule where one self-employed person has the ability to purchase health insurance.
How it Works
An employer generally purchases an insurance contract from an HMO or insurance company. In the United States all small group plans are offered at a guaranteed-issue basis. Meaning, no member in the plan can be denied coverage for past or current health problems. What can and does happen in a lot of states is that insurance companies are allowed to have an exclusionary and/or look-back period for pre-existing health problems. New enrollees into the plan that didn’t have prior creditable coverage are. Some small group plan coverage can be based on number of hours worked.
Factors that Help Determine Premium
- State rules and rating requirements
- Risk factors or overall health for the individual state or local residential areas
- Cost of health care in the area
- Any mandated benefits
- Types of products a group chooses
- Level of deductible or any cost-sharing that the employer purchases
- Premium taxes or assessments
- Level of deductible or cost-share that an employer purchases
Community Rating Versus Experience Rating in Determining Cost-sharing Percentage
Experience rating or community rating is the two methods that insurance companies use to determine the cost-sharing percentage that employees pay when in a small group health plan. Community rating is generally the best choose because it looks the medical expenses of a group plan that has been based on the health status in a geographic region. With this method everyone pays the same amount.
With experience rating any medical history and/or projected medical cost is taken into consideration when deciding the cost-sharing amount. This is done per individual plan member or it may be done for the employees as a group. What this means is that some would pay a higher premium when they are expected to have more medical expenses. There are a number of states that only allow the community rating.