The rules for group health insurance ratings depend largely on the laws of the state you live in. Many states mandate that insurance premiums be determined through a medical underwriting process, which means that the insurer can set the rates based on the medical history of the group that is applying for coverage. Some states, however, require that premiums be based on something called community ratings.
Community ratings require that any group insurance premiums be the same for every person who lives in a specific geographical area. That means that a middle aged smoker would pay the exact same premium as a non-smoking young adult. In this scenario the smoker pays a little less than he would otherwise, and the non-smoker pays a little more. The idea is that the premiums will average out across the group so that everyone is covered at the same rate.
A more complicated form of group insurance ratings is used in some states. Modified community ratings allow more flexibility for insurance companies to charge extra for pre-existing conditions. The older smoker would have to pay higher premiums than the younger non-smoker. What makes a modified community rating system different than a medical underwriting system is that people who belong to a similar demographic pay the same premiums regardless of their medical history. A healthy 55-year-old male pays the same premium as a 55-year-old male who works for a different company and suffers from diabetes.
Group health insurance ratings differ greatly from state to state. Before you purchase health insurance coverage for your business, you should do a little research about the type of ratings your state requires for health insurance premiums. The state’s system can have a large impact on the type of insurance coverage you choose for your business.