How Does the Health Insurance Carrier Assign Rates?
Question.
When medical premium rates are assigned is there any way to get a better deal?
Answer:
State of California regulation AB 1672 allows the regulated carriers incorporated in our great state to increase or decrease insurance premiums plus or minus 10% off standard rate. This is called "rate adjustment factor", or R.A.F. in the insurance community of group insurance brokers, agents, underwriters, membership, actuaries etc.. Each year upon anniversary the California health insurance carrier factors the claims and overall risk of the employee membership and assigns the appropriate number to balance healthy groups vs. expensive groups. This number is in addition to the annual rate increase or decrease the health insurance carrier assigns overall based on zip code, age, enrollment type, gender, and claims submitted overall by the Employer groups in the area region.
What the carrier cannot do is raise or lower the premiums of the California Small Business beyond the 10% margin and the overall increase a group might receive which is standard to the charted rates for all groups in the zip code. Health insurance is not like Auto Insurance or Home Insurance in this regard. It cannot be canceled or increase dramatically (unless you consider the 10% delta dramatic) because you happen to use your plan frequently or submit large, expensive health insurance claims.
When you run a quote at California-group-health-insurance.com, you will see an RAF (Risk Adjustment Factor) listed next to the rates. It will fall between .90 (10% discounted) to 1.1 (10% increased) based on the size of your group and the carriers general trend. This may change at the time of underwriting so you may want to go with 1.1 (worst case) if there are health issues within the company to be safe. You would rather have a pleasant surprise than an increase at the time of approval especially if employees are paying part of the cost.
When is the Risk Adjustment Factor applied or changed?
The RAF is initially set when the company is approved for Small Group health insurance with the carrier. The company will receive notification of their specific factor. This rate can be changes or updated at renewal (12 months following original effective date) each year based on the claims of the prior year. Some carriers such as Blue Shield of California and Health Net automatically apply the extra 10% for smaller groups (typically less than 5 employees). Other health insurance carriers such as Blue Cross of California will actually look at the health of the group even for companies with as little as 2 people. The RAF will be re-evaluated each renewal period.
RAF Guarantees and Group size
On average, the larger the group, the better an RAF your California small company will receive. Essentially, they are able to "average" a few employee's bad health among a larger pool of people. In fact, most carriers will start to offer guaranteed RAF's of 1.0; .95; or .90 for certain number of employees. These guaranteed RAF's usually start at 10 employees. A new company usually locks in a current rate for 12 months as well even if their is rate increase in the interim.
