Rating Factors of Health Insurance Companies

As with any business undertaking, insurance companies operate according to a profit-loss structure. The rating factors used within the health insurance industry enable companies to manage risk or loss while ensuring a certain amount of profit is made. Rating factors act as guidelines for determining premium amounts, eligibility standards and coverage limits.

Medical Underwriting

• When health insurance companies agree to insure a person's or group's medical care, they use rating factors as a part of their medical underwriting processes. While insurance practices vary according to state regulations, general factors used in the underwriting process include a person's age, health status and gender, according to Aetna's Health Insurance resource site. Rating factors allow companies to predict how often a person or group will need medical treatment and spreads the risk among participants. Medical underwriting practices are used to cover individual and small business group plans, according to Insure.com, an insurance reference site. In the case of larger groups -- like corporations -- underwriting factors are applied to the group as a whole in terms of number of people and previous claims history. With smaller groups, claims histories can have a stronger bearing on premium rates if a substantial number of employees have chronic health conditions.

Rating Bands

• Under the Federal Health Insurance Portability and Accountability Act of 1997, or HIPPA, insurers must charge the same rate to every person included within a group health plan. As a result, insurance companies use rating bands as a way to predict health care usage rates for groups of people, according to Insure.com. In effect, rating bands act as rating factors for group underwriting purposes and allow insurers to determine the lowest coverage rate a group can be charged based on the group's characteristics. Characteristics taken under consideration include gender, age, geographic area, industry type and group size. In general, groups with a higher number of young people would receive a lower plan rate than groups made up of people who are 40 years old and older.

Individual Coverage Rating Factors

• The rating factors used to determine individual health insurance coverage rates are the same as those used for group health coverage (age, gender, locale, claims history). Individual coverage differs in how these factors weigh in when considering a single policyholder's coverage. With group plans, insurers can spread risk across the group, which helps to keep rates lower. As only one person is covered under an individual plan, insurers take on more risk, which is why rates run higher for individual health policies. Gender-type rating factors play a significant role within the underwriting process for individual policies. According to Aetna Health Insurance, men tend to use health care services more frequently after the age of 50, whereas women use more services at younger ages. As a result, premium rates go up for men 50 years old and over, while women pay higher rates up until the age of 50.