Variables Affecting Cost
As mentioned above there are several variables that determine the initial cost of a health insurance policy. In a group plan setting the base line cost starts with determining insurance benefits associated with the coverage. Deductible levels, Coinsurance percentages, Out of Pocket Maximums and Copay levels are the key parameters. Cost is then adjusted based on a review of risk associated within the group, either through the review of medical conditions within the group membership or by reviewing past claim history. There are also other cost issues to consider such as increased cost “trends” due to technology improvements, expected fee schedule increases for hospitals and doctor services, prescription drug cost increases due to new and improved medications coming to market and state mandated coverage provisions. This combined “trend” factor is applied to a static premium cost to offset the associated risk that will occur over the course of the contract that rates are guaranteed for, typically a one year period. Lastly, insurance companies build in administrative costs to final premium rates. Administrative costs include profit margins and costs associated with broker fees.