What Will Determine My Insurance Premium?

Insurance premiums are determined by actuaries employed by insurance companies. The cost of advertising, selling, paying for services rendered by health care practitioners, administration of the insurance program as well as the investment of premium payments and a profit margin are factored into the premium amount. Actuaries determine the exposure to risk according to the provisions of the insurance policy and then set a premium rate. Additional underwriting factors, such as adverse selection for individual policies and special industry exposures for employer-sponsored group health insurance plans, are also factors of the premium charged.

Often the premium charged on an individual plan is much higher than the premium charged for similar coverages offered through a group plan due to “adverse selection.” Under group plans, an insurance company can determine that a percentage of participants will generally be in good health. Under individual plans, it is more likely that people in poor health and having a greater need for insurance will seek to buy coverage – “adverse selection” is the result of the basic premise that those people in good health do not have as much need for insurance as people who are in poor health.