What is a rate guarantee?

As part of any insurance company’s underwriting guidelines, they will disclose their rate guarantee. This is the length of time that the insurance company guarantees to the employer that there will not be an increase in the final premiums determined during the underwriting process. The total cost to the employer will increase if there are new employees added to the group plan, but not by more than the rates given to the employer at the time of enrollment or renewal. The employer will be provided a complete set of rates for all age classifications, including those for employee and spouse, employee and child and employee and family. Any new employee may not increase the total group premium by more than the amount set forth in these rate charts.

The standard rate guarantee offered by most insurance companies in the small group market is 12 months, but some companies may offer no rate guarantee. Small group rates are regulated by the state Department of Insurance in most states, and the insurance carriers are required to publish these rates with the department. An insurance company may adjust their rates by informing the Department of Insurance of the new rates, which in some cases must pass the approval of that state department. Insurance companies that do not offer a rate guarantee may increase the premium for any company, but not by more than the published rate plus or minus any rate adjustment factor that was imposed during initial underwriting. Insurance companies that offer a rate guarantee may not charge the group premium at these new rates until the end of their promised guarantee. Prior to this increase, the insurance company will notify the employer of the new rates, usually at least 30 days prior to the new rate increase. This gives the employer the opportunity to explore other options if the new rates are unacceptable.

Since small group health insurance is guaranteed issue, the insurance company must renew the group health plan at open enrollment if the employer agrees to the new rates. There may be no adjustment on the rate adjustment factor based solely on the claims of the group during the policy year. Other underwriting factors, such as the size of the group and minimum participation, may affect the rate adjustment and allow the insurance company to charge the employer a percentage greater than the standard published rate. During the open enrollment period, the insurance company has the rate to re-qualify the group to determine if they are still eligible under the terms of the contract.

1 Comment

1. It depends on the market segment, individual, family, medicare supplement or small group, but the carriers will offer rate guarantee to new sign ups. The typical rate guarantee is 6 months for individual or family health insurance. This should allow you to budget properly for expenses at least 6 months ahead and keep you from getting an unwanted surprise early on. For health insurance for small business there can be other rate guarantees. The goal of the guarantee is similar. To protect to you from signing up under one rate and then getting slapped with another rate immediately after. It’s obvious how this could be misused by shady insurance companies. For medicare supplement plans there are usually no rate guarantees to speak of.

   Comment by Paul — June 30, 2009 @ 11:46 am

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