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The Business of
Health Care Report Many employers and employees find the premiums they pay for their health insurance to be as mysterious as the pyramids in Egypt. But, HMOs and other insurers actually use precise formulas for arriving at premium structures. The actuary is the professional within the HMO who analyzes information and arrives at specific rates. The rate setting process is divided into two steps - setting an overall rate structure for the insurer and setting base rates that are adjusted for individual employer groups. The actuary examines recent claims experience, adjusts for inflation, examines changes in reimbursement to physicians and hospitals, and adjusts for administrative costs and recent benefits coverage mandated by the state or added by the insurer. The second step includes taking base rates and adjusting them for employer-specific characteristics. Age and sex are common factors used to set rates. Family status examines the composition of the group - how many employees are single and how many are married with dependents? The type of industry to which the employer group belongs is another factor. For example, an employer in manufacturing has a potential for higher medical costs than a business comprised largely of professionals. Premiums are also determined by the benefit plan design selected by the employer. In Texas, as in many other states, the insurer evaluates the health status of the client group. For new clients, this information is typically obtained from questionnaires completed by the employees. For renewing clients, this information is obtained by analyzing the plan's claims experience with that client over the previous year. State statutes establish limits on an insurer's ability to increase base rates due to health status. Health insurers also are required to file their overall rate structure and their base rates with the state Department of Insurance each year. If you have comments on health care or suggestions for topics to be addressed on this program, e-mail me at DougHawthorne@TexasHealth.org. Stay tuned to our weekly Business of Health Care reports here on TexasHealth.org and on News Radio 1080 KRLD. ©
2001 Texas Health Resources |
