Questions and Answers About Premiums

Why do companies raise premiums?
Insurance companies often raise premiums when the cost of claims they must pay increases.

Medical-cost inflation, a major factor that contributes to premium increases, measures the increased cost of a particular procedure each year.

Medical utilization, or the number of times doctors perform a procedure each year, also causes premium increases.

Cost shifting occurs when hospitals raise their rates for services to offset the cost of caring for nonpaying or indigent patients. In addition, new technologies, tests and medical malpractice claims can contribute to cost shifting and increase the cost of health insurance.

What do your premiums pay for?
Premiums help pay policyholders’ claims and other expenses, such as agent commissions, premium taxes and administrative expenses.

How do insurance companies determine premiums?
An insurance company considers many factors when setting premiums, such as:

• medical-care costs, 
  
• coverage,
  
• age of the policyholder (both current age and the age at which the policy was issued),
  
• gender,
  
• lifestyle habits (such as smoking),
  
• geographic area and
  
• riders purchased.

One example from the last category, called a waiver-of-premium rider, would require you to pay higher monthly premiums if selected. In return, the company would pay your premium if you became sick and couldn’t pay it.

Renewable Conditions and Premium Increases

Conditions for renewals and premium increases vary from policy to policy; ask your insurance agent or company representative about the conditions of the policy under consideration. You should also know these key terms:

Conditionally renewable
Under this condition, an insurance company may renew a policy until the policyholder reaches a certain age. The company may decline renewal or increase premiums under specified contract conditions. For example, a company may decline the renewal of your policy because of a career change. Most companies decline renewals for reasons other than a policyholder’s failing health.

Guaranteed renewable
This means a company must renew a policy for a specific period. Companies must raise premiums consistently for all insureds in the same class.

Noncancelable
Under this condition, an insurance company can’t cancel your policy or increase your premium if you pay on time.

Optionally renewable
This means an insurance company may cancel a policy at the end of the contract period for any reason, and increase premiums at any time.

Short term, nonrenewable
This means that you can’t renew your policy at the end of the policy term. Premiums remain constant for the policy period, which usually lasts a few months.

Under Florida law, your company must give you a 45-day notice, in writing, of cancellation, nonrenewal or premium change; HMOs must provide notice within 30 days. However, your company must only provide a 10-day notice, in writing, for a cancellation due to your failure to pay premiums. The law exempts a health insurer from written notice of cancellation for a policy in which a licensed agent collects the premium, or which you pay monthly. This could create a problem, particularly if you pay your premiums through an automatic withdrawal system at your bank or other financial institution. In such cases, you should carefully monitor your account to help make sure your insurance coverage remains in effect.

Consumer Alerts

A recent legislative change provides that companies offer up to a 10 percent annual premium rebate for participation in wellness programs. You should inquire about this rebate with your company.

Also, a Florida law rewards individuals who find improper charges on their health care bills. The law attempts to help contain the ever increasing costs of insurance and health care. You should carefully review the charges when you receive a bill from your hospital, doctor or other health care provider. You should verify that your bill covers only procedures you actually received. This will also help you to watch out for “double billing,” or being charged twice for the same procedure. If you see a mistake, you should notify your insurance company in writing. You may receive 20 percent of the reduction amount, up to $500, for an incorrect bill that merits a reduction.