How Health Insurance Is Priced: The Biggest Factor

#013 – Learn why the amounts paid to doctors, hospitals, pharma and other providers are the single biggest factors in the cost of your health insurance.

Understand how underwriters and actuaries use historical paid claims to forecast future claims, establish reserves and keep pace with inflation.  These amounts are then utilized to create the health insurance rates that you pay.

Paid claims are the amounts paid – on behalf of members of the employer group or individual pool – to doctors, hospitals, pharma and other providers.  

IBNR (aka Incurred But Not Reported) is a reserve amount insurers must hold back to pay claims from the current year that are paid in the future – next year or years after.  IBNR is calculated as a percentage of paid claims.

Trend is an amount that provides the ability of insurance premiums to keep pace with inflation.  Medical trend (medical inflation).  Trend is different than general inflation and has risen at much higher levels than general inflation over the past few decades.  Trend is applied to paid claims and reserves.

See the following link from PWC that illustrates their methodology in considering 2020 and 2021 medical trend.

2021 Medical Cost Trend – PwC

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Next episode we continue to tackle how your insurance is priced and the factors that affect its price.

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