How Are Health Insurance Rates Determined?

If you live in the United States, having health insurance is crucial for your overall health and well-being – and your pocket, too. Without coverage, you will be responsible for the full cost of any medical care that you receive, and given the fact that the cost of health care is rising at an exponential rate, those costs can be exorbitant; in fact, they can be crippling.

how are health insurance rates determinedWhile health insurance certainly makes your medical care more affordable, insurance itself can also be quite costly. Premiums, copays, co-insurance, prescription drugs; the cost of all of these things add up. In fact, the average family can end up spending thousands of dollars a year on their health insurance policy. While the amount you spend on your coverage is certainly less than what you would be responsible for if you weren’t covered, for many people, the thousands of dollars a year for insurance is a struggle to afford.

With that said, it stands to reason that you want to purchase the most affordable insurance possible. As you’re shopping around for insurance, you’ve probably received a number of different rates for similar policies, and you’re probably wondering how the rates that you receive are determined.

Below, we’ll outline what factors insurance companies take into consideration in order to determine the rates that they charge consumers.

How Rates are Determined

The rate that you pay for your health insurance is known as a premium. Premiums vary from company to company, and they are based on statistical data and research, which are combined to determine the risk of providing you with coverage; in other words, what the likelihood is that you will need to file a claim. The higher the likelihood that a consumer will file a claim, the more expensive it will cost a health insurance company to provide you with coverage; hence, the more expensive your premiums are going to be.

Factors that Affect Your Insurance Premiums

Every insurance company uses different standards to calculate the premiums they charge consumers. The rates are calculated based on the specific information you provide on your application. While every company differs, the following factors are usually taken into consideration when insurance companies determine how much they will charge consumers:

Medical History and Physical Characteristics

Your overall health is strongly taken into consideration when determining the risk of providing you with coverage. In order to determine your overall health, insurance companies consider the following factors:

  • Tobacco use. It’s a known fact that tobacco use has significant adverse effects on your health; therefore, if you use tobacco in any capacity – be it smoking cigarettes or chewing tobacco – your rates will be higher.
  • Weight. Your weight is another factor that insurance companies take into consideration; more specifically, your body mass index. Individuals that have a higher body mass index are more likely to develop health complications, such as heart disease and diabetes; therefore, if your BMI is high, your rates for your health insurance will also be higher.
  • Age. Age is also strongly taken into consideration, as the older you are, the more likely it is that you will develop health complications that will require medical care. If you’re younger, your rates will be lower, but older individuals usually pay higher rates on their insurance.
  • Sex. Your gender can also affect your risk; for example, females are more likely to go to the doctor than men, they are more prone to certain diseases, and if they should get pregnant, they will require pre- and postnatal care. As such, females usually pay higher rates for health insurance than males.
  • Medical history. If you have a medical condition that you have already been treated for at the time you apply for your health insurance, you can expect to pay more for your insurance. Individuals that have pre-existing conditions are more likely to require medical care; hence the reason why insurance rates are higher.
  • Genetics. If medical conditions run in your family – diabetes, heart disease, cancer, etc – you can expect to pay more for your health insurance, as there is a likelihood that you, too, will develop similar medical problems and require care.

Your Lifestyle

In addition to your medical history and physical characteristics, insurance companies also consider your lifestyle when they calculate your rates. Depending on the activities you engage in, you may be more prone to accidents or illnesses that would necessitate medical care.

  • Line of work. What you do for a living can have a significant impact on your health; for example, if you work with chemicals or you work in hazardous conditions, you can expect to pay more for your premiums.
  • Married or single. Believe it or not, married couples tend to pay less for health insurance than single people. The reason? – It’s not really understood, but married couples are healthier and have a longer life expectancy than their single counterparts.
  • Where you live. The location of your physical address can also affect your health insurance premiums. For example, if you live in an area that is more prone to severe weather or if you reside in a location with poor air quality, your rates will be higher.
  • Your insurance history. Individuals who have never had health insurance or who have had a lapse in coverage for an extended period of time are usually charged higher premiums. That’s because insurers assume that individuals who have not been insured will schedule appointments for the medical care they may not have been able to receive when they were uninsured, which will drive up the amount insurance companies have to pay for your coverage – and will drive up the rate you will have to pay in premiums.

Summing It Up

Many of the factors that are taken into consideration when determining the cost of health insurance premiums are out of your control; however, you can make changes to your lifestyle and improve your overall health (stop smoking, lose weight, etc) to reduce your risk of developing health complications that would require health care, and thus, you would be able to see lower premiums on your health insurance. With that said, however, it’s always in your best interest to shop around so you can find a policy that offers you the coverage you need at a rate that you can afford.

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