One wonders about how a health insurance company calculates the premium you are required to pay? Here are some of the answers. While getting an insight of any individual company may not be a simple exercise, but they all follow certain broad guidelines and these will be highlighted in this article for the consumers. Health insurance premiums are calculated based on the insurance plan purchased by the individual. These insurance products may be packaged in various ways to either provide a general coverage or may meet the needs of a particular age group. To decide on the amount that one would need to shell out, the health insurance company takes all costs into considerations.
It takes into consideration the individual’s health, present health status, past medical history, family history, age of the individual, personal habits. E.g. smoking, alcohol addiction etc. For purchasing a health insurance cover, the insurance companies may or may not conduct an initial medical examination of an individual before issuance of health insurance policy.
These are charges incurred by a health insurance company to cover the risks incase of any eventuality to an individual. Health insurance premiums increase, as you grow older. They increase in co-relation to hereditary or lifestyle ailments such as Diabetes, Hypertension, Obesity etc.
Administration and marketing expenses:
Such expenses are incurred by the organization as part of their operational expenses. These operational expenses are recovered in the form of premium that a policyholder pays while purchasing a health insurance product. Under this heading, expenses pertaining to payment of monthly salaries to their employees, commission to insurance brokers, insurance agents, marketing and sales of health insurance products and overhead costs are included, that constitute payment of premium by the policyholder. It also incorporates the costs required to meet the operational expenses on daily basis.
Underwriting of various health insurance products is done to create a balance between an organization and an individual. It takes into consideration the number of individuals covered under the health insurance policy and conducts a review pertaining to any claims history pertaining to that individual or that group or an entire organization.
Adjusted or Modified Community Rating:
This factor takes into consideration the geographical location, financial stability, industrial development, and others. Developed regions pay higher health insurance premium in comparison to regions with minimal development.
The usage of historical data is used to decide upon the rates based on the number of claims and the claim amount made during a given period. The data that is generated is used to calculate and predict the probability for claims in the future. This data forms the ground-work for analyzing the future health insurance premiums.
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