{"id":9,"date":"2012-02-22T00:08:01","date_gmt":"2012-02-22T00:08:01","guid":{"rendered":"http:\/\/online-health-insurance.int.apollobackstage.com\/articles\/?p=9"},"modified":"2013-05-13T16:15:34","modified_gmt":"2013-05-13T16:15:34","slug":"how-insurance-companies-rate-and-price-various-types-of-health-coverage","status":"publish","type":"post","link":"https:\/\/www.online-health-insurance.com\/articles\/analysis\/health-insurance-rates.php","title":{"rendered":"How insurance companies rate and price various types of health coverage"},"content":{"rendered":"

In order to shop effectively for health insurance, you need to understand how coverage is priced. Or \u201cunderwritten,\u201d in industry parlance.<\/p>\n

This is an essential point. But ordinary consumers don\u2019t think much about how health coverage is priced\u2014because they don\u2019t think about insurance like other goods or services they buy. Which contributes to the inefficiencies that sometimes screw up the health insurance markets.<\/p>\n

Think about how well you\u2014or maybe your kids, if you have any\u2014understand the pricing of mobile telephone services. People usually know how many text messages or minutes are allowed each month under their phone plans, the costs of exceeding those limits, the speed of their connections, coverage areas and many other fairly technical details.<\/p>\n

There\u2019s not much demand for the analogous details about health insurance. And a quick Internet search confirms this: The information available on health coverage pricing at most consumer sites is so limited that it\u2019s not useful.<\/p>\n

So, in this column, I\u2019m going to pretend that the pricing of health insurance coverage is something that a precocious 12-year-old would want to understand as well as she does her phone plan. And I\u2019ll try to explain it on those terms.<\/p>\n

When an insurance company sets up a health coverage policy, it looks at two things:<\/p>\n

1)\u00a0\u00a0\u00a0 the coverage offered by a particular type of health insurance policy, and<\/p>\n

2)\u00a0\u00a0\u00a0 the individual (or group of individuals) being covered by that policy.<\/p>\n

Some companies refer to these as \u201cprimary\u201d (related to the policy) and \u201csecondary\u201d (related to the individual insured) underwriting factors. In industry jargon, a company \u201cprices\u201d the coverage and \u201crates\u201d the individual insured.<\/p>\n

A jargon warning: The terms \u201cunderwrite,\u201d \u201cprice\u201d and \u201crate\u201d are used somewhat interchangeably in the insurance industry. Some companies use the terms strictly, separating their slightly different meanings; others use them loosely. In any case, the three terms refer to steps in the process of figuring out how much to charge for coverage.<\/p>\n

An insurance company will usually start by pricing the coverage in question. And this is trickier than pricing other types of insurance, for several reasons.<\/p>\n

1)\u00a0\u00a0\u00a0 Health insurance policies do not follow industry-standard forms, as homeowners and auto policies do. Most insurance companies write their own health policies, which means there can be big differences between one company\u2019s contract and another\u2019s. It also means that industry-wide payment numbers and trends mean less to a specific company when pricing health coverage than when pricing homeowners or auto coverage. (Though health insurance companies do use industry-wide numbers as a \u201ccontrol\u201d to compare against their own.)<\/p>\n

2)\u00a0\u00a0\u00a0 Payments made under an individual health insurance policy can vary dramatically, year to year. And in total. These payments are more difficult to model or otherwise predict than payments made under life or property coverages. Even when a health policy has a lifetime coverage limit (recently prohibited by the federal Affordable Care Act), most claims don\u2019t involve payments that come anywhere near that limit in a given year. But a few do\u2026and it\u2019s very difficult to predict which those few will be.<\/p>\n

3)\u00a0\u00a0\u00a0 Government programs\u2014primarily Medicare and Medicaid, but also others\u2014influence the cost of medical care services paid for by private-sector health insurance. While the reimbursement formulas used by the government plans are public information, they can have unintended consequences or other unpredictable effects. And, based on where and to whom a company sells its policies, government programs have a greater or lesser effect on payment histories. In some regions, Medicare sets the market prices for all health care services.<\/p>\n

So, there are lots of variables involved in pricing coverage. The best way to account for them all is to keep track of the various payments the insurance company has made under the various types of health policy it offers.<\/p>\n

Historically, the most common types of health policy have included:<\/p>\n