How is your premium determined?

On January 1, 2014, many of the new provisions of the Patient Protection and Affordable Care Act (ACA) went into effect.  One of the largest changes is that insurance providers can no longer engage in a process called medical underwriting.  Medical underwriting was when insurance companies would look at an applicant’s health status to determine if they would sell the applicant coverage, and how much they would charge for that coverage.  However, the ACA now prohibits insurance companies from considering one’s health status for either of these purposes. Consideration of health status was commonly known as “risk rating.”  This has been replaced by what has been termed “adjusted community rating,” which is a fancy way of saying insurance companies cant look at actual or expected health status or prior claims to set insurance premiums.  Some states, such as New York, already had forms of community rating in place, but now all sates will be required to adopt the system.

There are two exceptions where insurance companies do not need to abide by adjusted community rating and may continue to use risk rating.  First, “grandfathered” plans do not need to switch to adjusted community rating.  A grandfathered plan is a plan that existed prior to March 23, 2010, and has not made significant changes, such as reducing benefits or increasing costs to the insured.  To find out more information on whether your plan is grandfathered, click here.  Second, insurers may fluctuate from the premium rate established for a plan by adjusted community rating by considering certain limited factors.  These limited factors are: (1) individual or family coverage; (2) geographic area; (3) age; and (4) tobacco use.  However, a state may limit or eliminate a risk factor.  For example, California does not allow rating based on tobacco usage.

The new adjusted community rating system under the ACA will likely benefit everyone by dictating the way that premiums are established throughout the country.  Because insurers can no longer have limitations on coverage for pre-existing conditions and premiums cannot vary based on an individual’s health status, cancer survivors no longer need to fear being priced out of the market because of their cancer diagnosis.  Regardless of if one is still in treatment or not, they can rest-assured that they can find insurance options at a price comparable to others in their area.

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