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Calculating Group Health Insurance Rates

Your Zip Code and Your Individual Health History Are Both Factors...


Oct 2008



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How do insurance companies determine the group health insurance rates for small businesses?

Most states require health insurance providers to utilize a pricing method called medical underwriting, a process similar to that used by auto insurers.

Before getting coverage, eligible employees may be surveyed by a small group health insurance provider about their general health status.

Upon review, the companies may request more specific information about an employee's medical conditions to help them establish the risk of covering that individual with health insurance.

If there is a higher cost risk of covering someone with a pre-existing condition, all employees in a group health insurance plan may see their rates a bit higher to compensate. If the company doesn’t provide all the information the insurance company asks for, the insurer can assume the higher-risk situation and charge accordingly.

In 12 states group health insurance premiums are governed by community rating, where all residents of a specified geographic location are offered the same premium rate regardless of their health or living habits.

Under this method, a 25-year-old nonsmoking male would pay the same premium as a 59-year-old female with chronic heart disease. Some areas use modified community rating--which allows the insurers to use a few factors, such as age or smoking habits--to adjust group rates slightly.
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Group Health Insurance

Did you know...
Many states impose a "rate band" - keeping insurers within a specific range around the average premium rate?


Premiums may adjust annually based on number and cost of claims within the group, as well as general market trends.

An example of such a rate-altering trend would be the passage of a law that allows for more malpractice lawsuits, thus resulting in higher charges to the insurance company from providers.

How do large group policy rates differ?

Bigger companies have their group health insurance rates determined using medical underwriting, but there is generally no individual health insurance questionnaire. Instead, the insurers analyze the company's claims over prior years to determine the general risk involved in covering the group.

No matter what size your group, what part of the country your in, or what pre-existing conditions you or your employees might have, if you're looking for group health insurance or small business health insurance, we can help guide you in your research and decision process.


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