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Characteristics used to set health insurance premiums

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  • Characteristics used to set health insurance premiums


    I am an economist interested in studying adverse selection in health insurance markets. I would like to pose a question to anyone with actuarial experience in these markets.

    To an outsider (that is, a non-actuary) looking at these markets, it appears that premiums for individuals are determined without using all the available information on health status. For example, Medigap premiums might depend on age and sex but not on whether an individual has a chronic health condition.
    This seems puzzling (to this naive economist) since insurance companies could increase profits by refining their premium structure.

    My questions are:
    1. How much information about individual health status do health insurance companies use to set premiums?
    2. If they are ignoring some potentially relevant information, why?

    I am particularly interested in the market for Medigap insurance and the non-group market for non-elderly individuals, although I also welcome observations on what characteristics of employer pools are used to determine group premiums.

    I very much appreciate any thoughts people have to offer on this topic!

    Many thanks,
    Helen Levy
    University of Michigan
    [email protected]

  • #2
    Medicare Supplement is heavily regulated via model rules, which are set by Federal standards, albeit administered by the states. So insurers are not as free to use all data for Med Supp as they are with other individual health insurance forms, which are subject to state standards, but not federal. The Med Supp standards focus on uniformity, and require guaranteed issue for all new Medicare enrollees, so individual status must be largely ignored.

    You might find more information here:
    I thought this WAS a real job


    • #3
      Similar question


      Another naive economist. I'm doing research on the health status disclosure in the employer provided health insurance. What are other risks of disclosure employees faces except for possible higher group premiums ? If an employee have a choice of plan, where some plans require disclosure and some do not, how would you think the selection will work? I have heard from other researchers that health status information can be used in the preexisting conditions non coverage, especially in the case of legal dispute. Could you please comment on this if you have any information.

      Thank you very much,

      Ilya Rahkovsky
      Michigan State University
      [email protected]