If you own or operate a small business and are in the process of considering group health insurance and how to go about it, read on; this article is for you.
Group Health Insurance for Small Business
The types of groups eligible for group insurance coverage have broadened significantly over the years. This wider eligibility is reflected in both regulations and the underwriting philosophy of group writing insurers. Group insurance is permitted today for types of groups that did not exist in the early days of its development, and it is written on some types of groups whose applications would not have even been given consideration when the product was first introduced. Within the United States, the National Association of Insurance Commissioners (NAIC) Model Group Insurance Bill permits coverage on four specific categories of groups. Many states permit coverage on additional types of groups not identified in the NAIC model bill.
Employees of a Single Employer
The employees of a single employer comprise the first category mentioned in the NAIC model bill. An employer may be a sole proprietorship, a partnership, or a corporation. Also, employees may include not only the immediate employees of the employer, but several other categories as well. The single-employer group is by far the dominant type of group that is provided group insurance coverage.
Debtor-Creditor Groups
Group credit insurance (life and disability income) has grown rapidly in the United States, reflecting a credit-oriented society. The contract owner in these plans is the creditor, such as a bank, a small loan company, a credit union, or any business that has significant accounts receivable, including those that rely heavily on credit card customers. If the debtor dies or becomes disabled, the insurance proceeds are generally paid to the creditor to liquidate the indebtedness that provided the basis for the coverage rather than to the individuals who are insured or their beneficiaries. Debtors usually must be under a binding, irrevocable obligation to repay the indebtedness for coverage to be affected.
Labor Union Groups
Members of labor unions may be covered under a group contract issued to the union itself. The insurance must be for the benefit of persons other than the union or its officials. Generally, the entire premium may not be paid directly by member contributions. It is common, however, for payments to be made from funds partially contributed to the union by members specifically for their insurance and partially by the union from its own funds. In some cases, the union pays the total premium from its own funds. Group contracts often are written on multiemployer groups and issued to the trustees of a fund created through collective bargaining processes. This arrangement is typically established by two or more employers in the same or related industry, by one or more labor unions, or even jointly by employers and labor unions. The Taft-Hartley Act prohibits U.S. employers from turning over funds for employee welfare plans directly to a union- hence, the need for a separate trust and its trustees to serve as the group contract owner and decision maker.
Multiple-Employer Trust
Multiple Employer Trust (METs) a subset of multiple employer welfare arrangements (MEWAs) market group benefits to employers that have a small number of employees. METs may be sponsored by life insurance companies, independent administrators, or two or more employers in the same industry. The sponsor designs the plan, selects the employers (or other groups) permitted to participate, and usually handles the administration. Most trustees function in a passive role and are used mainly as the nominal group policyholder for insurance held by or on behalf of a MET. All financial transactions flow through and are accounted for by the trust. The member employers pay premiums to the sponsoring organization, which uses the money to purchase a group contract. The entire group of employers is experienced rated, thereby permitting greater credibility to be given the groups own experience.
Self insured METs assume the responsibility of making claim payments through a third party administrator. They should assess adequate premiums (contributions) and maintain proper reserves. In the early development of METs, this was not always done properly. METs have proven to be a source of regulatory confusion, enforcement problems, and even fraud. A U.S. General Accounting Office (GAO) report showed that from January 1988 to June 1991, METs left some 398,000 participants and their beneficiaries with some $129 million in unpaid claims and many other participants without insurance. More than 600 METs failed to comply with state insurance laws, and some violated criminal statutes.
The GAO report confirmed that state efforts to regulate METs, enforce state laws, and recoever unpaid claims were hindered because the states could not identify METs operating within their jurisdictions. Furthermore, when complaints did come to the attention of state regulators, they were frequently frustrated because METs asserted that they were exempt under the Employee Retirement Income Security Act (ERISA). As a result, in 1992 the U.S. Congress enacted legislation that requires self Insured METs to meet state insurance regulations concerning the adequacies of contributions and reserve levels. There has been a significant reduction in the number of self funded METs since the legislation was adopted.
Now that you understand the basic concepts of the organization of a group health plan and want to find out about the actual pricing, feel free to stop by and visit our website at http://www.health-insurance-buyer.com for a hassle free one on one consultation and quote.
For contact information please reach him at http://www.health-insurance-buyer.com
The pricing of health insurance or insurance in general is better understood if broken down into several components of an insurers business model, how the carriers look at us in terms of profit or loss. This article is mainly for educational purposes but it can be served also as a way for us as consumers to predict pricing accurately.
Factors Affecting the Premium
The premium rates for a particular benefit depend on
(1) morbidity,
(2) provider payment arrangements,
(3) expenses,
(4) persistence,
(5) interest, and
(6) profit and contingency margins.
Morbidity: In dealing with mortality rates for life insurance the only element considered is the number of expected deaths during a year compared with the total number of persons exposed in the class. In contrast, in the measurement of morbidity, the annual claim cost for a given age-sex-occupational class is the product of (a) the annual frequency of a particular event (b) the average claim when such an event occurs. For example, the annual frequency of hospitalization for a given age and sex might be 10 percent, the average duration of hospital stay might be four to five days, and therefore, the annual claim cost for a $500 daily hospital benefit would be $250 (0.1 x 5 x $500).
In health insurance, although mortality is a consideration, the primary consideration is the morbidity cost. Annual claim cost may vary, depending upon the kind and amount of benefits, according to such factors as age, sex, occupational class, and geographical area. Inasmuch as most policies contain more than one benefit, it is necessary to obtain separate annual claim cost for each type of benefit. Most morbidity tables used to calculate net annual claim cost of disability income benefits exclude the experience during the calendar year that a policy is issued. Attempts to identify the influence of underwriting on experience by policy year have not been very successful in contrast to the success of the practice for life insurance. The pattern of select experience under disability insurance is quite different fro that for mortality under individual life policies.
It is even more important to note that there is apparently substantial adverse selection by those applying for disability income policies who’s elimination periods are short and maximum durations are long. Studies show that at ages 50 to 65 there is a substantial increase in morbidity by policy duration that continues until the coverage terminates. Applicants who become insured in their twenties and thirties develop a higher level of morbidity after age 50 than those applicants who become insured after age 50. Furthermore, the experience is varies considerably, depending on the type of benefit under consideration. The experience is further complicated in the case of medical expense insurance by the continuing inflation in the cost of medical services, and in the case of disability insurance, by levels of employment and personal income. Obviously, consideration should be given to the relationship of select to ultimate experience in establishing gross premiums, so that the premiums for insurance issued at advanced ages properly reflect the savings from selection,
Provider Payment Arrangements: Premium rates for HMOs and other medical care organizations are affected by the degree to which providers participate in the cost. Having providers participate in benefit plan cost is intended both to reduce the cost of plan benefits through rate concessions and to provide incentives for the providers to control utilization, particularly in the areas of referrals to expensive specialist and in hospital admissions. Under traditional indemnity insurance products, providers are paid on a fee-for-service (FFS) basis. Managed care plans have typically negotiated fee arrangements with hospitals, physicians, pharmacies, and other providers.
Provider cost sharing can take on many forms, each of which have their own subtle impacts on underlying cost and behavioral incentives. An example of such an arrangement is capitation. A capitation payment is one in which the insurer subcontracts with a provider to perform a defined range of services in return for a set amount per month per plan enrollee. This arrangement represents the very end of the spectrum in risk sharing in that virtually all risk is passed along to the provider. The only risk remaining with the insurer is the solvency of the providers and their ability to deliver services. The fundamental purpose of these arrangements is to increase the provider’s awareness of cost and utilization. Such mechanisms must be constructed to be beneficial for both the providers and the insurer. Otherwise, the contractual arrangement will eventually dismantle the entire program.
Expenses: to obtain suitable expense rates for determination of premium rates, it is necessary to make detailed cost studies in which the various expense items may be expressed as (a) a percentage of the premium including premium taxes and agents commissions (b) an amount per policy including cost of underwriting and issuing a policy, and (c) an amount per paid claim such as the cost of investigating and verifying a claim. Because of the nonlevel commission rates, the per-premium types of expenses usually are larger in the first policy year, decrease during the next few policy years, and then are level for the remaining policy duration. The per policy types of expenses are much larger in the first policy year, reflecting the cost of underwriting and issuing the policy. The per-policy type of expense after the first policy year is relatively constant, except for the impact resulting from inflation.
Persistency: The persistency rate for a group of policies is defined as the ratio of the number of policies that continue coverage on a premium-due date to the number of policies that were in force as of the preceding due-date. Thus, if out of 100 policies, 75 policies are in force on the fist policy anniversary, the first-year annual persistency rate is 75 percent. The persistency rate usually improves with policy duration, and for some types of coverage the annual persistency rate will be 95 percent or higher after the fifth policy year. Naturally, other factors affect persistency rates. In general, persistency rates usually are higher at the older issue ages and better for the less hazardous occupations. Persistency usually is better in connection with major medical expense and disability income coverage than on basic hospital expense coverage. Persistency is important in health insurance rating for two reasons. First, expenses are higher during the first year than in subsequent years because of the typically higher first year commission rate. Also, claim rates under health insurance tend to increase as the age of the insured increases. In view of these factors, which vary by age at issue and policy duration, the premium-rate level will depend on the rate of lapse.
Interest: When a level premium is used, the insurer will have, after the first few policy years, an accumulation of funds arising from the excess of premium income over the amounts paid for claims and expenses. As in level premium life insurance, the funds accumulated during the early policy years will be needed in the later policy years, when the premium income is not sufficient to pay claims and expenses. In computing premium rates, therefore it is necessary to assume a suitable interest rate to reflect the investment earnings on these accumulations. Interest rates are of less significance in the calculation of medical expense premiums than in calculating life insurance premiums. The ratio of claims to premiums under health insurance during the early policy years is substantially greater than under level premium life insurance. Accordingly, more of the premium is used for claim payments soon after it is received by the insurance company, and it is, therefore not available for investment, as is the case of level premium life insurance. It is important to consider interest in measuring the average claim cost under long term disability income and long term care coverage. The value of the disability annuity can be significantly reduced because of the interest discount.
Profit and Contingency Margins: As with life insurance premium rates, it is necessary to introduce a margin for contingencies and profit into the premium-rate calculation. One method of doing so is to calculate a premium on the basis of most probable assumptions and then increase the premium by a percentage to provide some margin for contingencies and profit. Another method is to introduce conservative morbidity, expense, persistence, and interest assumptions and determine a premium on that basis. Still another would be to develop a gross premium that is consistent with a specific minimum required internal rate of return.
If you would like more details of the process involved in pricing premiums or would like to receive a no hassle quote, please feel free to visit our website at http://www.health-insurance-buyer.com for more information.
Before making a firm decision on a plan that looks attractive consult with a licensed agent about the possibilities that might happen after you submit an application to the insurer. In this article I will explain the possible scenarios that can happen once you apply.
Health Insurance Plans And Premiums Are Based On The Concept Of Risk
When shopping for individual private health insurance, the insurance company can reject an application, accept it at standard rates on a regular policy form, accept it on a higher – premium plan, or accept it on a regular policy form with an extra premium or surcharge. In recent years, there have been significant advances in the underwriting of impaired risk for health insurance, so that today only a small proportion of these risk is ineligible for insurance on some basis. In addition to those used in insurance, techniques for handling impaired risk include the use of exclusion riders and limitations on policy benefits.
Exclusions
Exclusions are a common method of handling physical impairments in health insurance. An exclusion rider is an endorsement attached to a policy that excludes from coverage any loss arising from the named disease, illness, or impairment. After such losses have been excluded and other aspects of the case have been deemed normal, full coverage can be issued for other types of losses at substandard rates. The exclusion may be somewhat broader than the condition that leads to its use. For example, a proposed insured with a history of kidney stones might be offered a policy excluding all diseases of the kidneys or genitourinary tract. Such an approach is considered essential because a kidney stone condition might aggravate another related disorder, and it also avoids possible problems if a claim based on a slightly different manifestation of the same underlying condition is present. Although a broad exclusion rider impairs the value of the coverage to the insured, it is usually preferable to the alternative. The only other alternative is declination if the condition is one that would be impossible to price accurately (such as highly subjective condition). Furthermore, from the company’s standpoint, the existence of the impairment can often produce disability, even from unrelated ailments. Conditions that commonly require waivers include back injuries, appendicitis, hernias, and elective surgical procedures. If, however, in the case of disability insurance, a long elimination period is requested, many conditions such as hernias and appendicitis may not require waivers.
Extra Premiums
Most insurance companies offer full coverage to certain impaired risk at an extra premium. Some companies offer coverage only on selected impairments or selected plans; others offer on all bases. Some reduce benefits, increase the elimination period for certain impairments, charge an extra premium, or utilize one or more of these features in combination. Companies void the preexisting condition exclusion in the policy with respect to an impairment for which an extra premium is charged. There are a multitude of problems in obtaining morbidity statistics that accurately reflect increased expected morbidity. Yet the prospect of offering broad coverage for preexisting conditions that could disability or hospitalization has encouraged many companies to change their underwriting practices and grant more complete coverage for an extra premium. Many impairments that could not be satisfactorily covered in the past because they either were to broad in scope or had too many systemic complications (such as many heart conditions or diabetes) can now be covered for a price. The use of the extra premium approach, however, does not eliminate the need for exclusions. Although exclusions are probably resorted to less frequently, there are still problems in granting unrestricted coverage in all instances.
Modification of Coverage.
The third major method of handling impaired health risk is to modify the type of policy. In the case of borderline applications, health insurance underwriters frequently settle the problem by offering a different and more limited form of coverage. This limitation may be a lower amount, a shorter benefit period, or a longer elimination period
Renewal Underwriting
Renewal underwriting is concerned with the health history of the insured and also changes in occupation, income, residence, or habits, all of which may have made him or her a less desirable risk. With optionally renewable policies, the company has an opportunity to reevaluate its insured’s periodically. Some companies do not avail themselves of their right to reunderwrite optionally renewable policies unless or until the loss ratio for that particular group of policies reaches a point at which action must be taken. Cancellation and re underwriting seem unfair to some persons. It is said that the insured often does not fully understand the terms of the contract or, if he or she understands them, does not appreciate their full importance. This is one reason so many insurers charge more and guarantee renewable of their policies to a specified age, rather than emphasizing one year term plans.
These are just some of the endless possibilities that happen when applying for coverage, if you would like further assistance on this subject matter feel free to visit our website at http://www.health-insurance-buyer.com for a free one on one no hassle consultation, our agents would be happy to help you make an informed decision.
Many times people applying for health insurance coverage exclude pertinent underwriting details during the initial application process regarding an applicant’s medical history or more specifically the utilization of certain prescription drug medications. Most often prospective applicants think it is of no real importance, however a health insurance application which disregards the proposed insured’s current or previous health status only to discover consumption of prescribed drugs is indicative of high risk and could result in a declination. The list of medications scrutinized carefully by a health insurance underwriter is extensive but the question most applicants ask is; how on earth do they get this data in the first place? I wanted to write this article so prospective applicants can better understand and prepare themselves so they do not get rejected prematurely by an insurer but first lets take a look at the role two popular highly interoperable databases utilized during the underwriting process work known as the Medical Information Bureau and Pharmacy Benefit Management.
By now most of the public already is aware about the Medical Information Bureau a non profit organization who shares and exchanges applicant information to member insurance companies. The Medical Information Bureau does not contain detailed electronic health records in their repository collection such as EKG readings, Blood Test results, and other diagnostic test which could be of real significance and value to insurance carriers. Instead the database contains codes which serve as warnings in the medical underwriting process and in most cases if the applicant has had group insurance for most of his or her lifetime and has not applied for individual private health insurance there is a lack of communicable information and in which case the insurance carrier will most likely request an attending physician statement commonly known as an APS or the insurer will request a paramedical examination. Even will all these protocols in place to investigate the proposed insured there is still the possibility that vital information is missing especially if the attending physician statement is missing documentation and records from an applicant prescribed medication from another practitioner of medicine such as a specialist. There are many databases used in health insurance underwriting and one being used more frequently today involves the usage of Pharmacy Benefit Management.
A Pharmacy Benefit Manager is a Third Party Administrator of prescription drug programs. They are primarily responsible for processing and paying claims for medications. They are also responsible for developing and maintain the formulary, contracting with pharmacies, and negotiating discounts or rebates with pharmaceutical manufactures. The focus on medication management promoted the deployment of a variety of interrelated systems. Generally, the medication management system encompasses four key areas: prescription, transcription, dispensing, and administration. Prescription covers the writing of patient medication orders. Transcription includes the transfer of orders to generate review and formulation activities in the pharmacy. Dispensing encompasses the preparation of the medication for delivery to the patient. Medication administration covers activities related to giving a medication to a patient. Lets look in more detail.
Prescription: Electronic prescription occurs through the use of computerized practitioner order entry (CPOE) systems. The functionality inherent in these systems varies greatly depending upon the intended user such as physicians or case management. CPOE often includes clinical decision support (CDS). CDS during medication management regularly utilizes medication databases that provide drug interaction and dose checking information during the initial phase of medication prescription.
Transcription: Transcription utilizes pharmacy systems that help pharmacist process medication orders and assist in pharmacy management. In addition, these systems often offer medication order checking through the use of pharmaceutical databases similar to those used during the prescription phase of medication management.
Dispensing: Dispensing of medications occur through the illicit use of a variety of hardware devices that are systematically tied to this integrated pharmacy system. These include robots that pick single dose medications and package them together for delivery to patients and dispensing cabinets located in inpatient areas that facilitate the accurate picking of medications. These cabinets, containing the most frequently administered medications, use a visual cue, such as an automatically lighted tray or single opened drawer, to indicate to the nurse the location of the correct patient medication. The cabinets use patient information, obtained manually from the nurse and entered into a computer linked to the cabinet or, more accurately, obtained electronically from the pharmacy system, to drive the cabinet logic.
Administration: Administration works to ensure the five rights of medication administration; right patient, right drug, right dose, right dose, right route, and right time. Systems employed during this phase often utilize bar coding of both patients and medications to ensure accuracy and tracking of medication administration. In addition to bar codes, radio frequency identification devices (RFID) tags are currently being deployed to assist in medication management. The tags consist of a microchip with an antenna that interacts with electromagnetic waves to exchange information. The capabilities of these tags vary from passive fixed data devices to self-powered data modifiable chips. RFID is also used for tracking of both people and supplies.
It is important to understand the side effect of all this is when you go to the pharmacy to pick up your medication this same preservation of system serves its purpose to disseminate knowledge regarding your condition to all HIPPA covered entities under the Health Insurance Portability and Accountability Act including the clinicians, physicians, pharmacies, and Insurance companies.
By now many of you readers are probably considering why all this information is even relevant. The reason I am writing this article is to show you what is not registered in The Medical Information Bureau can often be contained in the Pharmacy Benefit Management databases. Consider that certain medications such as Cymbalta, Lexapro, Wellbutrin, Oxycotin, Limictal, and Lithium just to name a few are an immediate red flag to most insurers. Insurers will most likely approve an applicant if they can justify the usage of these medications was situational on a particular circumstance like maybe depression because of a death in the family or sever pain because of an accidental injury. What insurers worry about is drug or chemical dependency and behavioral disorders that are eminent and progressive.
If you have never applied for individual health insurance but had group insurance and your doctor prescribed a medication its safe to assume the prospective insurer will know. Do yourself a favor and explain in detail on the application. By explaining in detail most insurance companies will request more information from the physician who prescribed the medication rather than having your application pending for months or decline your application because of insufficient information. For more information you may visit our website at http://www.health-insurance-buyer.com.
Today shopping for individual private health insurance online is fairly simple. Simply type the keywords “health insurance” on any major search engine such as Google, Yahoo, or MSN and you are virtually guaranteed to come across a multitude of websites with designer custom made plans. However, too often consumers who are simply weighing their options forget the bigger picture. It’s called medical underwriting. Medical underwriting is a process in which an insurer will evaluate under what terms and provisions they will insure an applicant if at all. Many times shoppers spend months trying to find the perfect benefit plan for the best price only to find out the plan they applied for came back after they submitted the application with a much higher price than anticipated or worse, they were declined coverage altogether and now cant get individual health insurance because they passed up what their employer offered.
Getting approved for individual health insurance coverage is not so easy.
If you had group insurance offered by your employer for most of the time you had coverage and this is the first time shopping for individual private health insurance, do your self a favor don’t just shop to get a feel for the market, take the next step and apply. Applying for coverage is the only real way you will really know what offer will be given to you and under what terms or price. Consult with a knowledgably licensed insurance agent who is familiar with the medical underwriting guidelines of the major medical insurance carriers offering the coverage you seek and begin to initiate the application process. All insurance carriers on the individual market will require an application to be complete with the first month’s premium deposit for consideration. The reason why insurers request this deposit is to ensure the applicant is serious about applying since they will incur administrative cost to determine if they will insure you or not, however some insurers will only withdraw funds if your approved while others will take the first months premium deposit and refund you if you decline their offer or if you are declined coverage altogether. Basically the entire process is two fold while you are considering them they are considering you.
There are many reasons why an insurer will come back with a much higher price than anticipated in regards to the benefits you apply for or decline the application altogether. Here are just a few common examples.
Height and Weight: The physical condition of a proposed insured is of basic significance in underwriting. One of the determinants of physical condition is build. Build includes height, weight, and distribution of the weight. Experience has shown that being overweight increases the likelihood of death or sickness at all ages so for an insurer to justify the cost they will raise your rate accordingly if accepted.
High Blood Pressure: Hypertension or High Blood Pressure is an intermittent or sustained elevation of diastolic or systolic blood pressure. Hypertension is a major cause of stroke, cardiac disease, and renal failure. Complications occur late in the disease and can attack any organ system. Cardiac complications include coronary artery disease, angina, myocardial infarction, heart failure, arrhythmias, and sudden death. Neurologic complications include cerebral infarctions and hypertensive encephalopathy. Hypertensive retinopathy can cause blindness or glaucoma. Reno vascular hypertension can lead to renal failure. Just because it is controlled does not mean an insurer will accept you, also any combination of High Blood Pressure, High Cholesterol, and Obesity almost always result in a decline with most carriers or at least a very high premium. The reason for all of this is from the insures point of view at very best you will create medical expenses in the form of diagnostic test, assessments, treatment, medication or at worst heart attacks and kidney transplants costing lots of money.
Smoking: When an individual uses tobacco in any form, whether it involves chewing, dipping, or smoking cigarettes, cigars, and a pipe, is an important risk factor by itself. In the past smoking or other tobacco use was considered in underwriting, but only rarely as a factor of importance by itself. For example, if a person had a respiratory problem and smoked, the underwriting decision might be less favorable than for an otherwise similarly situated non smoker. Smoking unaccompanied by any other negative factor however, was not a cause for a less favorable rating and continues to be ignored as a factor in many markets worldwide. Insurers now understand that smoking and any other tobacco use, even in the absence of any other negative factor, causes expected mortality and morbidity to be worse than average and the degree of variation is of such significance as to warrant separate classification. So important is this factor that the average female smoker can be expected to pay almost double the rate of the same non smoking male of the same age.
Occupation: Occupational hazards are not as important today as they were in the past, although in certain cases they can be. They may increase the risk in at least three different ways. First, the occupation may present an environmental hazard, such as exposure to violence, irregular living, or a temptation to experiment with drugs or overindulge in alcohol. Second, the physical conditions surrounding an occupation can have a bearing upon health and longevity, as in the case of persons who work in close, dusty, or poorly ventilated quarters or are exposed to chemical toxins. Finally there is the risk from accident, such as is faced by professional automobile racers, crop dusters, and scuba divers. An individual who has recently changed from a hazardous occupation to a safer form of employment must be underwriting carefully, as he or she may still retain ill effects from the earlier job or because the change may have been prompted by a health factor. It is common to see increased premium rates for bartenders, telemarketers, tattoo artist, truck drivers, actors, singers, artist, and servers to name a few if they get accepted at all.
Alcohol and Drugs: Information is usually sought regarding the proposed insured’s use of habit forming drugs and intoxicating beverages. Excessive alcohol use is associated with higher than standard mortality and morbidity meaning increased likelihood of death or sickness. If the individual applying for coverage uses alcoholic beverages in large amounts, he or she may be declined or offered substandard insurance while having to pay more to receive benefits, depending on the degree of usage. Use of alcohol in moderation is considered normal. Use of drugs not prescribed by a physician or drug abuse may call for a declination depending on the type of drug. A history of misuse or unsupervised use may require an extra rate increase depending upon the length of time since the drug or drugs were used, the nature of the treatment given, and whether there has been participation in a continuing support program such as Alcoholics Anonymous
Hazardous Sports and Avocations: Persons with a higher standard of living and searching for new ways to spend their leisure time often resort to hobbies and avocations. Such activities as scuba diving, mountain climbing, competitive racing, hand gliding, and sky diving clearly can involve a significant additional hazard to be considered in the underwriting process. If a hazard causes increased expected mortality and the individual is insurable on some basis, he or she usually is charged a flat extra premium commensurate with the risk. A rider excluding death or hospital expenditures resulting from participation in the hazardous activity may be employed occasionally. Also, riders excluding coverage for accidental injuries caused by football, basketball, or baseball players are not uncommon.
Anything: For those that think you are perfectly healthy, you are in for a big surprise. Even if you were never officially diagnosed with an uninsurable medical condition and by the way the list is endless, if you have not had coverage for some period of time a paramedical examination will have to be performed and insurers will be evaluating the test results very closely. Special attention will be given to the liver enzymes such as bilirubin, certain pressures in the kidneys such as the glomerular filtration rate which measures the rate of clearance of waste toxins you are capable of removing from your body and certain proteins in the body such as albumin. There really is not enough room within the scope of this writing to cover everything but it is important that you understand the reasons an insurer will decline your application or make you pay much more than anticipated is unlimited.
As a final note: The best advice I could give to consumers considering individual health insurance coverage is to avoid trying to do it yourself and instead seek the services of a licensed professional insurance agent who is not a captive agent working primarily with one carrier but is appointed with many carriers so he or she can place you with the carrier who will issue the coverage you seek with the price you can afford. Just remember you really don’t know what you get until you apply. If you are accepted and you don’t like the offer the insurer offered you, you can simply refuse and get refunded your fist month’s premium as long as you are within your free look period as mandated by applicable state and federal law.
For those of you still not ready to apply but need more questions answered please feel free to go to our website at http://www.health-insurance-buyer.com and register your information and one of our consultants will be happy to assist you even if you are not yet ready to apply. At the very least by speaking with one of our consultants you will have a more accurate picture of what will happen whenever you are ready to initiate the health insurance application process with the insurance carrier you select.
By now in the twenty first century most of the American public at large has grown aware of a non profit fraternal organization directly responsible for the decision making process a health insurance company will make regarding your acceptance into a major medical healthcare plan. The entity is known as The Medical Information Bureau, an industry trade association membership corporation owned by approximately 750 member insurance companies who exchange applicant information to each other in the form of unique and internally recognized codes. Some of the data collected and disseminated among its member partners are indicators of health impairments, dangerous lifestyles, adverse driving records, hazardous sports, and even characteristics of sexual deviance such as homosexuality. But how exactly does this enterprise receive their information? Where does the source come from? And how can you stop the insurance carriers from invading your privacy or at least limit the amount of knowledge they have on you?
How They Receive Your Information.
In many ways the emergence of information within modern industrial civilization today can be attributed to a medium described as Electronic Data Interchange, a computer application commonly known as EDI developed by The American National Standards Institute. EDI is the exchange of electronically transmitted documents in a structured format between organizations, in an automated manner, directly from one computerized terminal to another without human intervention or use of carbon copy for mediating its message. In healthcare this automation is the primary messaging system responsible for transmitting everything about your utilization of health services including prescription consumption, diagnostic testing, evaluation and screening, as well as hospital admission or discharge. As a matter of fact, an entire paradigm of rules or a set of specific instructions was constructed to address the informational architecture in which this logical framework would be built for optimal communication. This protocol for communicating everything about your health is called ANSI (ASC) X12N, and in many ways came to be pioneered in whole or in part by Healthcare Data Interchange Corporation, a Aetna insurance company.
Where does the information come from?
To be fair Aetna is not the only health insurance company responsible for monopolizing healthcare information databases. Conglomerates such as United Health Group own Ingenix who markets Medpoint a pharmaceutical prescription tracking system keeping records of your medication drug purchases. There are also players like Blue Cross Blue Shield and Cigna who own National Electronic Information Corporation, a clearinghouse for remitting medical claims on your behalf. There are hierarchies deployed by the health insurance companies with an agenda to know everything about you and EDI is how they transmit your records to each other.
An example of how it works.
Healthcare Data Interchange Corporation has one of the more successful business models for exchanging your medical records between associated partners utilizing EDI. The hierarchy of Healthcare Data Interchange Corporation is broken down into several subcomponents or subsidiary companies managing a very integrated circuit of knowledge acquisition. For example; If you apply for health insurance after a lapse of 63 days without prior creditable coverage, Equifax (The Credit Reporting Company) will request that a paramedical examination be performed from their subsidiary, Physical Measurements, inc. who in turn will send the results to sister company Smith Kline Laboratories who will process the results and send the batch to Physician Computer Network, an American Medical Association database shared by general practitioners whose computerized entry order terminals are all owned by National Data Corporation, subsidiary to Envoy Corporation, parent company of Aetna, who in turn will share some of the results indexed only by code to the Medical Information Bureau, all through EDI. Sounds complicated, doesn’t it? But there is something you can do about managing your privacy.
What You Can Do.
A paramedical examination for entry into a health insurance plan is somewhat unavoidable if you had more than 63 days without prior coverage, however once insured there are a couple of things you could do to limit the use of EDI topologies transmitting you medical records into the hierarchy of The Healthcare Data Interchange Corporation Network. Discuss your confidentiality concerns with your doctor. If you want a specific condition to be held in confidence by your personal physician, bring a written request to the appointment that revokes your consent to release medical information to the insurance company and/or to your employer for that visit. You must also pay for the visit yourself in cash rather than obtain reimbursement from the insurance company, in other words do not use your medical insurance card. To be especially certain of confidentiality, you may need to see a different physician altogether. Realize that under HIPAA, your attempts to restrict the sharing of specific records can be denied by the health care provider. Keep in mind also that certain elective procedures such as a lap band surgery, tubal reversal, or being prescribed certain medications may get you prematurely denied coverage by an insurance company if they have that information on record. In those cases where you are considering certain treatment and have a clean bill of health it might not be such a bad idea to put your medical insurance card back into your wallet and pay cash.
If you are shopping health insurance companies and need assistance in finding coverage from the company that meets your wants and needs, please visit our website at http://www.health-insurance-buyer.com and leave your contact information for a free consultation and a one on one no hassle quote. At the very least we can help you gain more knowledge on the subject of health insurance.
In this article we will explore the reasons that motivate employers to get group health insurance for employees and we will look at the advantages and disadvantages from both points of view.
Group Health Insurance VS Individual Private Health Insurance
Probably the most significant distinguishing characteristic of group insurance is the substitution of group underwriting for individual underwriting. In group cases, no individual evidence of insurability is usually required, and benefit levels can be substantial, with few, if any, important limitations.
Group underwriting normally is not concerned with the health or other insurability aspects of any particular individual. Instead, it aims to obtain a group of individual lives or, what is even more important, an aggregation of such groups of lives that will yield a predictable rate of mortality or morbidity. If a sufficient number of groups of lives is obtained, and if these groups are reasonably homogeneous in nature, then the mortality or morbidity rate will be predictable. The point is that the group becomes the unit of underwriting, and insurance principles may be applied to it just as in the case of the individual. To assure that the groups obtained will be reasonably homogeneous, the underwriting process in group insurance aims to control adverse selection by individuals within a group.
In underwriting group insurance, then, certain important features should be present that either are inherent in the nature of the group itself or may be applied in a positive way to avoid serious adverse selection such as:
Insurance Incidental to the Group: The insurance should be incidental to the group; that is, the members of the group should have come together for some purpose other than to obtain insurance. For example, the group insurance furnished to the employees of a given employer must not be the feature that motivates the formation and existence of the group.
Flow of Persons through the Group: There should be a steady flow of persons through the group; that is, there must be an influx of new young lives into the group and an out flow from the group of the older and impaired lives. With groups of actively working employees, it may be assumed that they are in average health.
Automatic Determination of Benefits: Group insurance underwriting commonly requires an automatic basis for determining the amount of benefits on individual lives, which is beyond the control of the employer or employees. If the amount of benefits taken were completely optional, it would be possible to select against the insurer because those in poor health would tend to insure heavily and the healthy ones might tend to elect minimum coverage.
As the group mechanism has evolved, however, insurers have responded to demands from the marketplace, particularly large employers, for more flexibility in the selection of benefits. This flexibility typically is expressed in optional amounts of life and health insurance in excess of basic coverage provided by the employer and in more health care financing choices. Also, increasingly popular cafeteria plans allow participating employees to select among an array of benefits using a predetermined allowance of employer funds. Individuals select, subject to certain basic coverage’s being required, a combination of benefits that best meet his or her individual needs.
Minimum Participation by the Group: Another underwriting control is the requirement that substantially all eligible persons in a given group be covered by insurance. In plans in which the employee pays a portion of the premium (contributory), generally at least 75 percent of the eligible employees must join the plan if coverage is to be effective. In the case of noncontributory plans, 100 percent participation is required. By covering a large proportion of a given group, the insurance company gains a safeguard against an undue proportion of substandard lives. In cases in which employees refuse the insurance for religious or other reasons that do not involve any elements of selection, this rule is relaxed.
Third Party Sharing of Cost: A portion of the cost of a group plan ideally should be borne by the employer or some third party, such as a labor union or trade association. The noncontributory employer-pay-all plan is simple, and it gives the employer full control over the plan. It provides for insurance of all eligible employees and thus, eliminates any difficulties involved in connection with obtaining the consent of a sufficient number of employees to meet participation requirements. Also, there is no problem of distributing the cost among various employees, as in the contributory plan.
Contributory plans usually are less costly to the employer. Hence, with employee contributions, the employer is likely to arrange for more adequate protection for the employees. It can also be argued that, if the employee contributes toward his or her insurance, he or she will be more impressed with its value and will appreciate it more. On the other hand, the contributory plan has a number of disadvantages. Its operation is more complicated, and this at times, increases administrative cost considerably.
Each employee must consent to contribute toward his or her insurance, and as stated before, a minimum percentage of the eligible group must consent to enter the arrangement. New employees entering the business must be informed of their insurance privilege. If the plan is contributory, employees may not be entitled to the insurance until they have been with the company for a period of time. If they do not agree to be covered by the plan within a period of 31 days, they may be required to provide satisfactory evidence of insurability to become eligible. Some noncontributory plans also have these probationary periods.
Efficient Administrative Organization: A single administrative organization should be able and willing to act on behalf of the insured group. In the usual case, this is the employer. In the case of a contributory plan, there must be a reasonably simple method, such as payroll deduction, by which the master policy owner can collect premiums. An automatic method is desirable for both an administrative and underwriting perspective. A number of miscellaneous controls of underwriting significance are typically used in group insurance plans, but the preceding discussion permits an appreciation of the group underwriting underwriting theory. The discussion applies to groups with a large number of employees.
A majority of the groups, however, are not large. The group size is a significant factor in the underwriting process. In smaller plans, more restrictive underwriting practices relating to adverse section are used. These may include less liberal contract provisions, simple health status questions, and in some cases, detailed individual underwriting of group members.
Group Policy: A second characteristic of group insurance is the use of a group policy (contract) held by the owner as group policyholder and booklet-certificates or other summary evidence of insurance held by plan participants. Certificates provide information on the plan provisions and the steps required to file claims. The use of certificates and a master contract constitutes one of the sources of economy under the group approach. The master contract is a detailed document setting forth the contractual relationship between the group contract owner and the insurance company. The insured persons under the contract, usually employees and their beneficiaries, are not actually parties to the contract, although they may enforce their rights as third party beneficiaries. The four party relationship between the employer, insurer, employee, and dependents in a group insurance plan can create a number of interesting and unusual problems that are common only to group insurance.
Lower Cost: A third feature of group insurance is that it is usually lower-cost protection than that which is available in individual insurance. The nature of the group approach permits the use of mass distribution and mass administration methods that afford economies of operation not available in individual insurance. Also, because group insurance is not usually underwritten on an individual basis, the premiums are based upon an actuarial assessment of the group as a whole, so a given healthy individual can perhaps buy insurance at a lower cost. Employer subsidization of the cost is a critical factor in group insurance plan design. Probably the most significant savings in the cost of marketing group insurance lies in the fact that group commissions absorb a much smaller proportion of total premiums than commission for individual contracts.
The marketing system relieves the agent or broker of many duties, responsibilities, and expenses normally associated with selling or servicing of individual insurance. Because of the large premiums involved in many group insurance cases, the commission rates are considerably lower than for individual contracts and are usually graded downward as the premium increases. Some large group insurance buyer’s deal directly with insurance companies and commissions are eliminated. In these cases, however, fees frequently are paid to the consultants involved. The nature of the administrative procedures permits simplified accounting techniques. The mechanics of premium collection are less involved, and experience refund procedures much simplified because there id only one party with whom to deal with such as the group policy owner.
Of course, the issuance of a large number of individual contracts is avoided and, because of the nature of group selection, the cost of medical examinations and inspection reports is minimized. Also, regulatory filings and other requirements are minimized. In the early days of group insurance, administration was simple. That is no longer true. Even with group term life insurance, for which there is no cash value, the push for accelerated death benefits, assignment to viatical companies, and estate or business planning record keeping means that the administration of coverage may be as complex as with an individual policy.
Flexibility: in contrast to individual contracts that must be taken as written, the larger employer usually has options in the design and preparation of the group insurance contract. Although the contracts follow a pattern and include certain standard provisions, there is considerably more flexibility here than in the case of individual contracts. The degree of flexibility permitted is, of course, a function of the size of the group involved. The group insurance program usually is an integral part of an employee benefit program and, in most cases, the contract can be molded to meet the objectives of the contract owner, as long as the request do not entail complicated administrative procedures, open the way to possibly serious adverse selection, or violate legal requirements.
Experience Rating: Another special feature of group insurance is that premiums often are subject to experience rating. The experience of the individual group may have an important bearing on dividends or premium-rate adjustments. The larger and, hence, the more reliable the experience of the particular group, the greater is the weight attached to its own experience in any single year. The knowledge that premiums net of dividends or premium rate adjustments will be based on the employers own experience gives the employer a vested interest in maintaining a favorable loss and expense record. For the largest employers, insurers may agree to complicated procedures to satisfy the employer’s objectives because most such cases are experience rated and reflect the increased cost.
Some insurers experience rate based on the class or type of industry, or even based on the type of contract. For small groups, most insurance companies’ use pooled rates under which a uniform rate is applied to all such groups, although it is becoming more common to apply separate pooled rates for groups with significantly better or worse experience than that of the total class. The point at which a group is large enough to be eligible for experience rating varies from company to company, based on that insurer’s book of business and experience. The size and frequency of medical claims vary considerably across countries and among geographic regions within a country and must be considered in determining a group insurance rate. The composition (age, sex, and income level) of a group will also affect the experience of the group and, similarly, will be an important underwriting consideration.
Advantages and Limitations of the Group Mechanism.
Advantages: The group insurance mechanism has proved to be a remarkably effective solution to the need for employee benefits for a number of reasons. The utilization of mass-distribution techniques has extended protection to large numbers of person s with little or no life or health insurance. The increasing complexity of industrial service economies has brought large numbers of persons together, and the group mechanism has enabled insurance companies to reach vast numbers of individuals within a relatively short period and at low cost. Group insurance also has extended protection to a large number of uninsurable persons. Equally important has been the fact that the employer usually pays a large share of the cost. Moreover, in most countries, including the United States, the deductibility of employer contributions and the favorable tax treatment of the benefits to employees make it a tax effective vehicle with which to provide benefits.
Another significant factor, and one of the more cogent motivations for the rapid development of group insurance, has been the continuing governmental role in the security benefits area. Within the United States, Old-Age. Survivors, Disability, and Health Insurance programs has expanded rapidly, but many observers believe that, had not group insurance provided substantial sums of life insurance, health insurance, and retirement protection, social insurance would have developed even more rapidly. As economies worldwide continue to reduce the size and scope of social insurance programs, we can expect the demand for group based security to grow even more.
Disadvantages: From the viewpoint of the employee, group insurance has one great limitation- the temporary nature of the coverage. Unless an employee converts his or her coverage to an individual policy which is usually ore expensive and provides less liberal coverage, the employee loses his or her insurance protection if the group plan is terminated and often also at retirement because employment is terminated. Group life and health protection is continued after retirement in a significant proportion of cases today in the United States, but often at reduced levels. Recently, with the introduction of a new U.S. accounting standard (FAS 106) requiring that the cost of such benefits be accrued and reflected in financial statements, an increasing number of employers have discontinued post retirement life and health benefits entirely. When such continued protection is not available, the temporary nature of the coverage is a serious limitation.
Retiree group health insurance often is provided as a supplement to Medicare. Another problem of potential significance involves individuals who may be lulled into complacency by having large amounts of group insurance during their working years. Many of these persons fail to recognize the need for, or are unwilling to face the cost of, individual insurance. Perhaps of even greater significance is the fact that the flexibility of the group approach is limited to the design of the master policy and does not extend to the individual covered employees. Furthermore, group plans typically fail to provide the mechanism for any analysis of the financial needs of the individual which is a service that is normally furnished by the agent or other adviser. Many agents, however, discuss group insurance coverage with individuals as a foundation for discussing the need for additional amounts of individual life and health insurance.
If you would like some more details, perhaps you are a small business owner and are considering group health insurance for your employees, please feel free to go to our web site for a one on one no hassle free consultation.
The next time you apply for individual health insurance be prepared for a variety of preliminary evaluation testing procedures to see if the insurer will reject or accept you including: testing of blood, urine, presence of alcohol or smoking, and evaluating your genetic composition.
In the individual private healthcare market there is the concept of health insurance medical underwriting. It involves assessing and quantifying a prospective applicant who is applying for coverage as a potential liability or risk to the insurer by a professional underwriter. The process is similar to applying for a loan from a commercial bank. There are basically three types of risk the insurer will screen for.
(1) Physical Risk; The primary concern regarding the applicant. In this context the issue is in regards to the medical condition of the proposed insured or a propensity towards cancer determined by family history.
(2) Morale Risk; A potential insurer would forgo consideration of an application altogether if there is any explicit or implicit evidence of the applicant involved in hazardous avocations, sports, or occupations.
(3) Moral Risk; An insurer will definitely attempt to avoid the speculation of insuring an applicant who has an inclination to suicidal tendencies, criminal behavior, and certain lifestyle habits or tendencies.
For years insurers predicated on the reliance of multiple sub-systems derived from strategic cumulative integration of intelligent computers to draw their conclusions for the purpose of risk assessment. A new technology currently in experimental phases funded through Kaiser University has discovered a statistical methodology to ascertain and unify all three risk categories in unison during real time for the purpose of medical underwriting by utilizing genetically calculated risk scoring algorithms. It is a highly interoperable biometric screening application interconnected to a plurality of relational healthcare databases. The silicon apparatus utilizes an infrared thermal touch screen sensor as a biometrical identifier that verifies the integrity of an applicant’s personal genetic profile with razor sharp precision by credentialing his or her fingerprints against federal law enforcement databases, national automated verification systems, and a compilation of tabulated DNA repositories.
DNA?
Humans have 23 pairs of chromosomes containing their DNA blueprint. One member of each chromosomal pair comes from their mother, the other comes from their father. Every cell in a human body contains a copy of this DNA. The large majority of DNA does not differ from person to person, but 0.10 percent of a person’s entire genome would be unique to each individual. This represents 3 million base pairs of DNA. In clinical studies this percentile has proven to be meaningful enough to structurally composite predictive valuations of significant importance to an insurance company including approximating personal behavioral tendencies, psychological proficiency, and expectancy of mortality or morbidity. It has been so proficient in screening risk that a law was recently passed to protect employees and insured applicants from its discriminatory prejudice known as The Genetic Information Non Discriminatory Act. However, the act is convoluted by pretenses directly or indirectly imposed by The Health Insurance Portability and Accountability Act which places little restriction on the information that can be shared by HIPPA covered entities.
What Does My DNA Have To Do With My Health Insurance?
Over the last few decades insurance carriers began data warehousing many of the popular DNA databases such as the Integrated Automated Fingerprint Identification System and CODIS with mixed usage proprietary commercial datasets such as Ingenix, Physician Computer Network, Intelliscript, Medical Information Bureau, and even Secure Flight Passenger Data compiled by The Transportation Security Administration. The so called purpose of this was for authentication and with the recent caveat of electronic health records identity theft, authenticity of an applicant was the alibi insurance companies needed to exploit and get away with this, at the same time create a more robust underwriting system. Just remember the next time you visit the general practitioner you signed a petition form authorizing all parties managing your care to share knowledge regarding your health which in unique circumstances grants special permissions to all parties above.
How This New System Works.
A fingerprint is made of a number of ridges and valleys on the surface of the finger. Ridges are the upper skin layer segments of the finger and valleys are the lower segments. The ridges form so-called minutia points: ridge endings (where a ridge end) and ridge bifurcations (where a ridge splits in two). Many types of minutiae exist, including dots (very small ridges), islands (ridges slightly longer than dots, occupying a middle space between two temporarily divergent ridges), ponds or lakes (empty spaces between two temporarily divergent ridges), spurs (a notch protruding from a ridge), bridges (small ridges joining two longer adjacent ridges), and crossovers (two ridges which cross each other).The uniqueness of a fingerprint can be determined by the pattern of ridges and furrows as well as the minutiae points. There are five basic fingerprint patterns: arch, tented arch, left loop, right loop and whorl. Loops make up 60% of all fingerprints, whorls account for 30%, and arches for 10%. Fingerprints are usually considered to be unique, with no two fingers having the exact same dermal ridge characteristics. The biometric device measures kinetic heat frequencies from an applicants touch disseminated throughout minutia points and automates a recognition key cipher query from ridges through a call interface dispatched by an encrypted terminal control program. Basically, the examiner will inquire based on the information presented to him and await an answer from the mainframe computer in remote proximity. I don’t know about you but somehow the thought of my data traveling around through a typical client/server type architecture does not make feel comfortable at all. Just imagine all the errors that can go wrong. The new system is ripe for exploits in at every social level in addition to invading all our rights of privacy as citizens, never mind qualifying for coverage.
There Is Something You Can Do.
If you do not want to insurance companies having access to your sensitive private health information among many other things such as your financial prowess, consumption, personality or lifestyle the first thing you might want to do is avoid applying with Kaiser Permanent or any of the fellow member insurance companies owned by National Electronic Information Corporation, it is bad enough we have to be ordained by The Medical Information Bureau just to even get health insurance in the first place.
The second thing you can do is visit our website to find more health insurance information or simply leave your information (for the purpose of protecting your privacy, you need not leave any other information you do not feel comfortable to share) We will be glad to provide competitive quote from Major Medical Insurance carriers who do not participate in this practice. Not all insurance carriers participate in this type of screening procedure but you probably will want to avoid the carriers that do as once you are in the system, you are in and that one place you do not want to be if you value your healthcare and how much you spend on it.
When shopping for health insurance there are many things to consider for your options. There are a couple of plan styles to choose from in the healthcare marketplace, lets look at them.
HMO: Health Maintenance Organizations (HMOs) are legally organized entities that share the common characteristics of responsibility for both financing and delivering comprehensive health care services to a defined group of members for a prepaid, fixed fee. HMOs differ from traditional insurance indemnity plans in that they are both the financing and servicing mechanism. They emphasize preventative medicine and early treatment through prepaid routine physical examinations and diagnostic screening techniques. At the same time they, provide complete hospital and medical care for sickness and injury.
PPO: Preferred Provider Organizations (PPOs) are groups of health care providers that contract with employers, insurance companies, union trust funds, or others to provide medical care services at a reduced, negotiated fee. Like HMOs, they make take the form of group practices or separate individual practices. PPOs typically differ from HMOs in two aspects. First, they provide benefits on a fee-for-service basis as their services are used. Fees are usually subject to a schedule that is the same for all participants in the PPO. Second, plan participants have financial incentives to use the preferred provider network. A participant’s access to specialist is not controlled by a primary care physician, as is the case in HMO plans.
EPO: Exclusive Provider Organizations (EPOs) are similar to PPOs in their organization and purpose, but unlike PPOs, EPOs limit their participants to participating providers. In general, individuals covered by an EPO are required to receive all their covered health care services from providers that participate with the EPO. Because of the severe restriction on choice of provider.
POS: Point-of-Service-Plans (POS) are not really a health care provider per se; however they are more of a hybrid arrangement that combines aspects of traditional medical expense plan with an HMO or PPO. In a POS plan, a participant’s access to a provider network is controlled by a primary care physician. Participants retain the option to seek care outside the network but at reduced coverage levels. POS plans are sometimes referred to as open ended HMOs. The POS plan is the fastest growing health plan in the United States.
PHO: Physician-Hospital-Organizations (PHOs) are organizations that are jointly owned and operated by hospitals and their affiliated physicians and typically are developed to provide a vehicle for hospitals and physicians to contract together with other managed care organizations to provide health care services. Carve-out-plans are health care programs managed separately from an employer’s general health care plan by HMOs or PPOs that specialize in a particular type of care. An HMO or PPO that specializes in a particular type of care may be more successful at controlling cost for that type of care than a general purpose medical care network. Mental health, substance abuse, prescription drugs, and dental care are some of the more common types of care approached in this manner.
So now that you know about the basics of each, its time to do a little shopping. Please feel free to contact us or visit our website for a free one on one consultation our agents have many years experience and can help answer all your questions at no cost.
If you are a small business owner or operator and want to get an explanation of the way premiums are priced for the company, then please read on. There are basically two ways these premiums can be calculated.
Group Insurance Pricing
The pricing (rate making) process in group insurance is essentially the same as pricing in other industries. The insurance company must generate enough revenue to cover the cost of its claims and expenses and contribute to the surplus of the company. It differs in that the price of a group insurance product is initially determined on the basis of expected future events and may also be subject to experience rating so that the final price to the contract holder can be determined only after the coverage period has ended. Group insurance pricing consist of two steps.
(1) The determination of a unit price, referred to as a rate or premium rate for each unit of benefit (e.g., $1,000.00 of life insurance, $1 of daily hospital benefit, or $1 of monthly income disability benefit)
(2) The determination of the total price or premium that will be paid by the contract holder for all of the coverage purchased.
The approach to group insurance rate making differs depending on whether manual rating or experience rating is used. In the case of manual rating, the premium rate is determined independently of a particular groups claim experience. When experience rating is used, the past claims experience of a group is considered in determining future premiums for the group and/or adjusting past premiums after a coverage period has ended. As in all rate making, the primary objective for all types of group insurance is to develop premium rates that are adequate, reasonable, and equitable.
Manual Rating
In the manual rating process, premium rates are established for broad classes of group insurance business. Manual rating is used with small groups for which no credible individual loss experience is available. This lack of credibility exist because the size of the group is such that it is impossible to determine whether the experience is due to random chance or is truly reflective of the risk exposure. Manual rating is also used to establish the initial premiums for larger groups that are subject to experience rating, particularly when a group is being written for the first time. In all but the largest groups, experience rating is used to combine manual rates and the actual experience of a given group to determine the final premium. The relative weights depend on the credibility of the groups own experience. Manual premium rates (also called tabular rates) are quoted in a company’s rate manual. As pointed out earlier, these manual rates are applied to a specific group insurance case in order to determine the average premium rate for the case that will then be multiplied by the number of benefit units to obtain a premium for the group. The rating process involves the determination of the net premium rate, which is the amount necessary to meet the cost of expected claims. For any given classification, this is calculated by multiplying the probability (frequency) of a claim occurring by the expected amount (severity) of the claim.
The second step in the development of manual premium rates is the adjustment of the net premium rates for expenses, a risk charge, and a contribution to profit or surplus. The term retention, frequently used in connection with group insurance, usually is defined as the excess of premiums over claim payments and dividends. It consists of charges for (1) the stop-loss coverage, (2) expenses, (3) a risk charge, and (4) a contribution to the insurer’s surplus. The sum of these changes usually is reduced by the interest credited to certain reserves (e.g., the claim reserve and any contingency reserves) the insurer holds to pay future claims under the group contract. For large groups, a formula is usually applied that is based on the insurers average claim experience. The formula varies by the size of a group and the type of coverage involved. Insurance companies that write a large volume of any given type of group insurance rely on their own experience in determining the frequency and severity of future claims. Where the benefit is a fixed sum, as in life insurance, the expected claim is the amount of insurance. For most group health benefits, the expected claim is a variable that depends on such factors as the expected length of disability, the expected duration of a hospital confinement, or the expected amount of reimbursable expenses. Companies that do not have enough past data for reliable future projections can use industry wide sources. The major source for such U.S. industry wide data is the Society of Actuaries. Insurers must also consider whether to establish a single manual rate level or develop select or substandard rate classifications on objective standards related to risk characteristics of the group such as occupation and type of industry. These standards are largely independent of the groups past experience.
The adjustment of the net premium rate to provide reasonable equity is complex. Some factors such as premium taxes and commissions vary with the premium charge. At the same time, the premium tax rate is not affected by the size of the group, whereas commission rates decrease as the size of a group increases. Claim expenses tend to vary with the number, not the size of claims. Allocating indirect expenses is always a difficult process as is the determination of the risk charge. Community-rating systems, developed originally by Blue Cross Blue Shield, are often defined to limit the demographic and other risk factors being recognized. They typically ignore most or all of the factors necessary for rate equity and may be as simple as one rate applicable to those with families. There is little actuarial rationale for charging all groups the same rate regardless of the expected morbidity. Community rating has been mandated in some jurisdictions. This makes it a matter of public policy rather than an actuarial pricing question.
Experience Rating
Experience rating is the process whereby a contract holder is given the financial benefit or held financially accountable for its past claims experience in insurance-rating calculations. Probably the major reason for using experience rating is competition. Charging identical rates for all groups regardless of their experience would lead to adverse selection with employers with good experience seeking out insurance companies that offered lower rates, or they would turn to self funding as a way to reduce cost. The insurance company that did not consider claims experience would, therefore, be left with only the poor risk. This is why Blue Cross Blue Shield had to abandon community rating for group insurance cases above a certain size. The starting point for prospective experience rating is the past claim experience for a group. The incurred claims for a given period include those claims that have been paid and those in process of being paid. In evaluating the amount of incurred claims, provision is usually made for catastrophic claim pooling. Both individual and aggregate stop loss limits are established in which exceptionally large claims (above these limits) are not charged to the group’s experience. The “excess” portions of claims are pooled for all groups and an average charge is accounted for in the pricing process. The approach is to give weight to the individual groups own experience to the extent that it is credible. In determining the claims charge, a credibility factor, usually based on the size of the group (determined by the number of insured lives insured) and the type of coverage involved, is used. This factor can vary from zero to one depending on the actuarial estimates of experience credibility and other considerations such as the adequacy of the contingency reserve developed by the group.
In effect, the claims charge is a weighted average of (1) the incurred claims subject to experience rating and (2) the expected claims, with the incurred claims being assigned a weight equal to the credibility factor and the expected claims being assigned to a weight equal to one minus the credibility factor. The incurred claims subject to experience rating are after consideration of any stop loss provisions. Where the credibility factor is one, the incurred claims subject to experience rating will be the same as the claims charge. In such cases, the expected claims underlying the prospective rates will not be considered. Thus, when companies insure a group of substantial size, experience rating reflects the claim levels resulting from that group’s own unique risk characteristics. It has become common practice to give to the group the financial benefit of good experience and hold them financially responsible for bad experience at the end of each policy period. When experience turns out to be better than was expected in prospective rating assumptions, the excess can either be accumulated in an account called a premium stabilization reserve, claim fluctuation reserve, or contingency reserve or the excess can simply be refunded. The refund is either called a dividend (mutual company) or an experience rating refund (stock company).
The net result of the experience rating process is usually called the contract holder account balance, representing the final balance attributed to the individual contract holder. As pointed out earlier this balance or a portion of the balance can be refunded to the contract holder. The adequacy of the group’s premium stabilization reserve influences dividend or rate adjustment decisions.
This article serves as a basic explanation of how the premiums for a group health plan is calculated, for a more detailed explanation please visit our website at for a no hassle free one on one consultation and quote.
