Premiums 101 – How Are Health Insurance Premiums Determined?

Health insurance premiums are a reflection of the underlying costs of care.  When the cost of medical services such as doctor visits, hospital stays, and medical devices increases, these costs drive a corresponding increase in premiums.  Federal government data show that over the past 20 years health benefit costs (i.e. how much the nation has spent on medical procedures, treatments, doctors’ visits, etc.) have increased by an average of 7.2 percent annually and premium increases have averaged 7.1 percent annually.  These data demonstrate that health care costs and premiums go hand-in-hand.

Calculating health insurance premiums is a relatively straightforward process driven by four main factors:

• Cost of medical benefits;
• Cost of selling the policy;
• Cost of administering the policy; and
• Capital for solvency requirements to ensure adequate funds so claims can be paid

Click here for detailed presentations about how health insurance premiums are determined.