Factors Affecting The Prices Of Health Insurance

Expenses are an ingredient in health insurance just as in life insurance. Population mortality, however, is relatively unimportant, although deaths by accident and the mortality of the disabled are important. The interest rate is of minor significance because most policies are short-term policies. In addition, a large proportion of the premium is used for claim payments soon after it is received, leaving less for the insurer to invest. Basically, the product of the frequency of claims and the average size of claims determines the claim costs. The claim cost plus an expense loading equals the gross premium. Thus, the average length of disability as well as the rate of disability is important. Similarly, the length of the average stay in a hospital is as important as the rate of admission. Continuance tables are used to show the probabilities of different lengths of hospital confinements and of disability durations. When these are combined with frequency statistics, claim costs can be calculated in a relatively simple manner for single benefits such as monthly disability income. However, the calculation becomes more complicated when all hospital benefits are paid (e.g., under some Blue Cross plans) and when benefits contain various waiting periods, deductibles, and maximum benefit limitations. The problem of measuring the expected claim costs in these instances becomes exceedingly complex.