How Do We Set Your Rates?

Healthcare CostsWe annually review the rates we charge to make sure that the amount our customers pay every month is able to cover the cost of providing benefits. We look at a number of factors in deciding your rate, including:

  • How much does it cost to pay for the medical services our customers use?
  • How do we predict how much the cost of medical services will change in the next 12 months?
  • What will we have to pay in taxes, commission payments, and administration costs?
  • Do we have enough in reserves (our savings account) to meet the needs of our customers if the unexpected happens?

We divide this overall cost among all the customers on our plans to come up with a rate that everyone pays for the same set of benefits. Washington State and Alaska use a system known as “Community Rating”. This means that health plans can’t charge people different rates because of factors like  medical conditions they may have, or how much they use their benefits.

The rates our customers pay are affected by factors like whether they smoke, their age, and the plan they choose. All our customers are divided into five-year age bands, so, for example in Washington, everyone who is aged 20-24 pays the same rate, and everyone aged 25-29 pays a slightly different rate. This means that every five years, when you change age bands, you are likely to experience a more significant rate change.

Who controls the rates we charge?

Once we have calculated what we think are appropriate rates for the coming year, we submit a rate change request to the Washington Office of the Insurance Commissioner (OIC) or the Alaska Division of Insurance, depending on which state’s customers are affected. The agency examines all the data we have provided and decides whether the rate we have requested is appropriate, specifically answering the question are the rates charged “reasonable” for the benefits provided? They have the power to disapprove our rate request if they think it’s incorrect.

What if we get the rate wrong?

Federal law requires us to spend at least 80 percent of our customers’ monthly rates on medical care for our customers (85 percent for large groups). If we set the rates too high, then we won’t meet this threshold. If that happens, we give our customers a rebate to make up the difference. If we set rates too low, then the rates we collect won’t be enough to cover the costs of providing benefits and we will lose money.

Do rates ever go down?

Like most things, the costs of running a health plan are subject to inflation.  In fact, the cost of medical services is rising at rates far higher than inflation, so it’s not very common for monthly rates to go down. Read more about what’s driving costs up.

Why do rates sometimes change in the middle of the year?

We review our rates annually, but sometimes factors outside of our control force us to make adjustments to rates at other times. This is usually the result of a new federal or state law or regulation, which we are required to implement.

More about healthcare coverage 101: