How do health insurance companies estimate claim costs?

Health insurance companies estimate total claim costs for all policyholders with similar policies based on the following:

• which types of services will be used (for example, X-ray or MRI);
• how many services policyholders will use;
• where policyholders will go for services (for example, a doctor’s office or an emergency room);
• the average amount paid to medical providers for each service across all Maryland policyholders with similar policies; and
• the portion of the cost of services that the health plan will pay (total cost minus any deductibles, copayments, or coinsurance amounts for which the member is responsible).

Each item in the list above typically is estimated using past history of the policies, adjusted to reflect expected increases in total claim costs (“trend”), and any changes in covered services.