Community and Experience Premium Ratings
One of the least understood aspects of Group Health Insurance premium calculations is the difference between the different types of ratings insurance companies use when looking at the cost of coverage. Choosing between a Community Rating or an Experience Rating can have a significant impact on the overall cost of the policy, but will also have an effect on the consistency and longevity of the plan’s pricing.
A Community Rating will mean that each individual in the group will pay the same premium as all other policyholders of the same age, with the same policy benefits, and the same coverage area. This is possible because the insurers will calculate the estimated average medical costs for a specific community, and then apply that premium across the entire community.
In the case of groups that have a community rating, the community calculated premiums for the entire group are then added up to get the overall total.
An Experience Rating will mean that the premium for the policy is calculated based on the claims-experience the group has under the policy. This means that the policy can often start with a very affordable premium, but will increase over time as claims are made and the group’s “experience” begins to develop.
For more information on these two types of premium rating, please click Group Health Insurance Ratings..