Health Reform 101 – What is the difference between a health insurance premium and a rate?

As Minnesota consumers start planning for their insurance needs in time for Open Enrollment and the opening of Minnesota’s health insurance marketplace, MNsure, on October 1, 2013, the Minnesota Department of Commerce urges consumers to take a look at the options to make the best fit.  Understanding the difference between a health insurance premium and a rate will help consumers find health insurance that fits their financial and health needs.
Often, the terms “rate” and “premium” are used interchangeably when discussing insurance, which makes comparing prices confusing to the average company.  To simplify the process, the Commerce Department reminds consumers that:
· A rate is the average amount an insurance company charges for a defined package of health insurance plans.  For example, the rate for your insurance might be $300 per person, per month.
· A premium is the amount that you and/or your employer pay each month for your family’s plan.  For example, if a plan covers a couple at a rate of $300 per person, per month, the premium is $600 per month.

What factors go into my rate?
Individual and small group health insurance rates are determined for a particular plan of benefits from a particular network of doctors and hospitals based on the combined medical costs of everyone in that company’s market for a particular age, tobacco use, and geographic area. This is called community rating– the rates are based on the costs of the entire community.

What factors affect my premiums?
In general, how much a health plan company charges depends on the following:

· Your age and the age of any family members in your plan
· Whether or not each person 18 or older uses tobacco
· Where you live
· The benefits in your health plan

The Commerce Department reviews all health plan rates and policy forms  and a company cannot use a rate until it is approved. This allows the Commerce Department to ensure the rates reflect the true cost of the benefits included in each health plan. These rates are the basis for the premium you pay, which can only be based on your age (and the age of your family members), where you live, and whether you smoke.
Your insurance company must spend at least 80 or 85 percent of the premiums they collect on health care claims or quality improvement. If they don’t, the company must send a rebate to the policyholder or employer that bought the plan. These rebates are issued each year, and in the last two years, over 132,000 Minnesota consumers received nearly $10.5 million in rebates, or an average of $254 per family.
It is important to remember that the cost you pay may vary under different policies. When shopping for a new plan, consumers will want to consider the deductible and the copay or coinsurance you would pay when you use your health care, as well as the premium you pay each month.

The Minnesota Department of Commerce is here to help
Call our Consumer Response Team at 651-539-1600 or toll-free at 1-800-657-3602 (in Greater Minnesota) if you have any questions about your insurance or if you believe you have been a victim of a scam or fraud.

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