Computation Of Health Insurance Premiums

Accidental death and dismemberment premiums 

Premiums for accidental death and dismemberment are not difficult to establish because the size of the claim is predetermined by the policy, and there is little problem in determining whether the claim is legitimate. Furthermore, dismemberment benefits represent less than 10 percent of total claims, and accidental death rates vary only slightly with age; thus they are relatively easy to calculate. The data are also reliable and more universally usable. Hospital and surgical premiums. Hospital and surgical premiums vary with the type of hospital benefit, the level of benefits provided, the duration of the period of hospitalization, and the age and sex of the insured. For any given age and sex, tables show the cost per $1.00 of room and board benefits payable for varying durations. The cost of hospital extras is then related to the room and board cost. The surgical benefit schedules commonly used are fairly similar, and the costs of various surgical operations are relatively easy to determine. In addition, there are sufficient data on the frequency of various surgical operations to make premium computation fairly simple. Major medical premiums, on the other hand, are difficult to calculate because they are greatly influenced by the inflationary trend in medical costs, the considerable variation in deductibles and coinsurance limits, and the effects of such factors as geographic cost differentials, maternity benefit utilization, and time limits on illnesses. Thus, a great deal of subjective judgment is involved in determining adequate premiums. 

Disability income premiums 

Disability income premium calculations are based more on occupation than age and give more weight to interest earnings, especially on long-term contracts. For noncancellable-guaranteed renewable contracts, the premium computations are much the same as for life insurance except that the average claim cost is substituted for policy size and the claim frequency for mortality rate. The length of the waiting period also significantly affects disability income benefits and, therefore, the premium.