🖤 Donations of all sizes power our public service journalism Give Now

How do health insurers set premiums?

Nancy Marshall-Genzer Feb 22, 2010

How do health insurers set premiums?

Nancy Marshall-Genzer Feb 22, 2010


Kai Ryssdal: We have heard from the White House on health care today. The president’s going to have to sign that bill — if and when it happens. He put his plan on the Internet this morning, three days before a big televised summit with the House and Senate. Obviously there’s a lot in there. One key part of it would let the federal government block or roll back what are called excessive increases in premiums.

We asked Marketplace’s Nancy Marshall Genzer how those premiums are set in the first place.

NANCY MARSHALL GENZER: It sounds simple enough.

CORI UCCELLO: Total premiums have to be adequate to cover claims and expenses.

That’s Cori Uccello. She’s an actuary at the American Academy of Actuaries. Actuaries at health insurance companies crunch the numbers to come up with premiums. She says the first rule is set premiums high enough to cover your costs. You can follow a sort of blueprint looking at a person’s age and health.

UCCELLO: So a 55-year-old man, for example, who has a history of health problems is going to be expected to have higher health spending than, say, a younger and healthier 25-year-old.

Then you factor in rising hospital costs, and doctors fees. Sounds simple again. But it gets complicated. Insurance companies have overhead costs: marketing, payroll, lobbying. All that gets rolled into premiums. And insurers are regulated by the states. And each state’s regulations are different.

Jerry Katz is a health care analyst at Kurt Solomon Associates.

JERRY KATZ: It’s variable state to state how much oversight the state insurance commissioners provide. You got a tough state and an easier state.

And then there’s the price of politics.

Alan Sager teaches health policy at Boston University. He says Anthem Blue Cross of California ignored the political climate when it announced plans recently to raise rates by up to 39 percent.

ALAN SAGER: Making outrageous 39 percent premium increases when the political spotlight is on health insurance is remarkably stupid.

Anger over the California rate hikes breathed new life into President Obama’s proposed health care overhaul. The plan the president released today would allow the federal government to force Anthem Blue Cross to roll back its rates.

In Washington, I’m Nancy Marshall Genzer for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.