Ever wondered how health insurance premiums are derived? Well, currently, there are two principal rating methodologies used by health insurance providers and they are Community Rating and Experience Rating. These rating methods determine how much an individual or group pay for their health insurance. Let Insurance Market explain how they differ;
Experience Rating
Under this system of rating, the individual has their premiums determined based on their present health condition and other risks associated with that person. This can also be applied to specific groups and the premium of the group would be based on the health risks faced by that particular group (e.g. a family).
The benefit of such a system is to allow groups or individuals to pay health insurance premiums as it is based purely on their low cost experience. Example of this being beneficial would be a young healthy individual or family versus a sick or elderly person or couple.
Community Rating
This rating system requires health insurance premiums to be charged based on the people within a given group or area. This means that everyone in that defined community would be paying the same premium. Suppose a young gym instructor and an elderly man with heart disease are enrolled in a community-rated policy. The premium paid by both in such a system would be the same.
Within community rating, you will find that there are two kinds of rating one being pure community rating and the other being adjusted community rating. In adjusted community rating demographic factors such as age, gender and nationality are taken into consideration whereas in a pure community the costs of medical care are spread across the entire community equally. This essentially means that those who are healthier support those who are not as healthy.
Which rating method is better you might ask?
Well, this is debatable as both the methods have their pros and cons. Community-rated policies distribute financial burden among the community, therefore a sick person can obtain subsidized premium rates with the support of the premiums paid by a healthier person. Having said this, these policies often tend to be more expensive. Experience rated policies do offer lower premiums for healthier individuals, but this also means higher costs for those who are less healthy.
In conclusion
Community rated policies are sometimes available under employment benefit plans where a company attains health insurance for all their staff. Although that seems more beneficial, there are also drawbacks to that particularly when staff change employers. Healthy individuals will also end up paying for their less healthy colleagues. that will not want to leave a company in fear of loosing their medical benefits.
If you company does not offer an attractive plan and you live in Singapore, then check out the health policies on our Insurance Market platform and compare which plan suits your specific needs. Compare health insurance premiums and plans and side-by-side. If you need help or advise just give us a call or chat with us online!
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