Rating Variation Limits (Premium Rating Rules)

The major provisions of the Affordable Care Act are right around the corner. The way premiums are rated will be a major factor in reshaping the health insurance market.

As one example, health insurers in the Individual and Small Group markets must treat the entire market as a single risk pool when setting rates.

In addition, differences in premiums based on health status are not allowed. Insurers must rate sick people and healthy people the same based on specific rating factors.

Health plans under reform can vary premiums based on the following four allowable rating factors:

  • Age – limited to a 3:1 ratio. This means that the rate for a 64-year-old can’t be more than three times (i.e., 300 percent) the rate for a 21-year-old.
  • Family composition with member-level rating applied. This means that each family member will be rated individually based on his/her age. 

    Carriers can charge only for the three oldest children in the family who are under 21*. For example, let’s say the Moore family has mom, dad and four children under age 21. The Moore family’s rate would include: mom + dad + the child rate x 3 (age 0–21). 

    Now if the oldest of the four children in the Moore family is over 21 years old, the rates would include: mom + dad + 23-year-old + the child rate x 3 (age 0–21).
  • Geographic rating area.
  • Tobacco use – limited to a 1.5:1 ratio.

Health Net has opted against rating for tobacco, so we will not be factoring that into our rates.

* Rating methodology varies by state. For example, in California, the three oldest dependents under age 21 are rated for individual and family plans.