How Are Health Insurance Premiums Determined on Individual Plans?

Health insurance can help you avoid unnecessarily large medical bills. If you are shopping around for health insurance, you might notice a wide range of quotes from health insurance providers. Health insurance companies use several factors when determining your individual health insurance rates.

State Laws

• One of the factors that plays a role in determining your health insurance premiums is the state in which you live. Each state has an insurance office that helps determine the amount of money that you are charged by your insurance company. While the state insurance office does not necessarily set the exact rates for your policy, it does set a maximum that the insurance company can charge you. People in different states have different amounts that they could have to pay for coverage.

Health

• Another factor that determines your health insurance premiums is your health. The insurance company will take a look at your health information and determine if there is anything that makes you a higher risk to insure. If you have been relatively healthy all your life and do not use tobacco, your health insurance provider will generally give you a lower premium than someone who has many health problems. Someone who has been healthy represents a lower risk.

Location

• You will also be affected by where you live. Medical costs vary greatly from one region to the next, and the insurance company is looking at the average cost in your area when giving you a quote. If you live in an area with higher average costs, your premiums will be higher.

Choices

• The choices that you make with your policy also affect your premiums. For example, the amount of deductible that you choose for your policy will have a drastic effect on how much your premiums are. If you raise your deductible, your premiums will be lowered on your health insurance. If you choose a lower out-of-pocket maximum, this will raise the premiums on your policy.

Actuaries

• Health insurance companies use individuals called actuaries to help determine the rates for their policies. Actuaries are skilled at math and statistics, and determine what the insurance company should charge for coverage. Actuaries look at statistical data gathered by the health insurance provider to help figure out the likelihood of paying a claim for people in different demographics. The skill of the actuary will play a major role in the success of the insurance company and will directly affect the amount that you pay for premiums.