Initial premiums for small group fully insured programs are determined by age/sex demographics, primary zip code of all participants within the group and of course benefit plan design which includes deductible levels, coinsurance percentages, Out of Pocket maximums and copay levels. An underwriter will also review disclosed medical conditions of all participants during the application process to determine any adverse risk associated with the group. Initial manual rates that have been developed by demographics, location and benefits are then adjusted depending on that perceived risk.
Premiums on large group fully insured programs utilize the same demographic data and zip code information that is gathered in the small group rating process but typically, there is no lengthy application process and thus no medical condition information to evaluate. Instead, an underwriter will request medical claim history for the group going back one, two or even three years to project expected claims for the group going forward. An underwriter will then assign a “credibility” factor to the group’s claim history and weight the claim experience accordingly against manual rates developed using demographic data. Depending on the size of the large group, an underwriter could weigh the claims history as much as 100% in determining future premium rates. A more likely scenario would mesh claim history and manual rates, especially for groups between 300 and 3000 lives in determining the annual premium rates the group will pay.