This document discusses methods for assessing health insurance premiums and costing benefit packages. It defines premium as the amount paid by the insured to the insurer for health coverage. It describes four rating methods used by health insurers: community rating, risk rating, income rating, and experience rating. Key factors that influence premium prices are identified as claim costs, administrative costs, marketing costs, contingency margins, and profit margins. Strategies for collecting premiums include payroll deductions, deductions at source, membership payments, and voluntary payments. The document provides a case study example of costing a benefit package for a village community based on population size, expected illness incidence and costs, and factors in premium calculation like administration costs and taxes.

1. Assessing Premium and
costing Benefit package
Nehal Jain
Institute of Public Health

2. Overview of the session
• Definition of Premium
• Different Rating Methods used by Health
Insurers
• Factors Influencing Health Insurance Premium
• Strategies for collecting premium
• Calculating premium

4. Definition of Premium
• Premium is the consideration paid to the insurer
by the insured for the health insurance coverage.

6. Different Rating Methods used by Health
Insurers
1) Community Rating
This is a system of determining uniform health insurance
premium rate for all individuals in a community, based
on the cost of providing medical services to all people in
the community, without adjusting for individual risks
and medical history.

7. Different Rating Methods used by Health
Insurers
2) Risk Rating
This is a system of determining health insurance premium
for each individual based on the risk perceived by the
insurer, and involves consideration of the individual’s
medical history, occupation, lifestyle and other
individual characteristics in the determination of his or
her premium.

8. Different Rating Methods used by Health
Insurers
3) Income Rating
This is a system of determining health insurance premium
based on the income or wages of the individual, and is
typically a defined proportion of the income, where a
limit or a floor premium may also apply.

9. Different Rating Methods used by Health
Insurers
4) Experience Rating
This is a system of determining health insurance premium
based on the insured’s past loss experience. Thus, the
method is used for individuals and groups who have
been covered for a sufficiently long length of time to
enable the insurer to assess the loss experience or service
utilization by the insured.

11. Factors Influencing Health Insurance
Premium
• Claim costs: claim costs are usually the predominant
expense of a health insurance plan, factors affecting
claim costs are important in determining the amount of
premium that is necessary to be charged under a health
insurance plan.

12. Factors Influencing Health Insurance
Premium
• Administrative costs: Administrative costs
include the costs of collecting premium, costs of
underwriting, costs of issuing policy documents and
identification documents to the beneficiaries, costs of
enrolling and accrediting/ monitoring providers of
care, costs of processing and paying claims,
government taxes and levies like stamp duty on
policies etc., and also the costs of planning, supervising
and managing the health insurance scheme.

13. Factors Influencing Health Insurance
Premium
• Marketing costs
Marketing costs include not only the commissions and
incentives paid out to agents, advisors, brokers and other
sales functionaries, but also the costs of acquiring and
maintaining a sales network, costs incurred on print and
visual media, and also, especially in the case of
community based schemes, costs of advocacy and
awareness generation in the community.

14. Factors Influencing Health Insurance
Premium
• Contingency margins
Insurers also need to provide contingency margins
in their premium structure, as the claims
experience could be greater than what was
expected by them. Such contingency margins
also help build reserves which could see the
insurer tide over a ‘bad’ year when exceptional
claim costs may arise.

15. Factors Influencing Health Insurance
Premium
• Profit margin
Finally, over and above all these costs, insurers
may provide for a profit margin, if they are a for-
profit organization.

16. Factors Influencing Health Insurance
Premium
• Reinsurance
A part of the premium collected is given or ‘ceded’
to a reinsurance company, in return for various
types of reinsurance covers which reduce the
exposure of the insurer.

17. Strategies for collecting premium
• Pay roll deductions
• Deductions at source
• Membership payments
• Voluntary payment

19. Costing Benefit Package – A case
study
Dharampur village wants to implement a
community based health insurance for its
people. The details of the village are as
below:
• Population of the village – 5000 people
• Around 20% of the population is willing to
join the scheme
• Benefit Package expected – Outpatient
cover, Inpatient cover, deliveries

20. Incidence of Illness
• Number of outpatient treatment expected
per person per year – 1.5 episodes
• Number of admissions expected per 100 –
5 episodes
• Number of deliveries expected per 100
women – 5 episodes

21. Cost of care
• Average Cost per Out-patient – Rs. 200
• Average Cost per In-patient – Rs. 5000
• Average Cost per Delivery – Rs. 3000

22. Costing of Benefit Package and
Assessing Premium
Number
expected for Average Cost Cost per
1000 people per incidence Total Cost Person
Outpatient Treatment 1500 200 300000 300
Hospitalization 50 5000 250000 250
Deliveries 50 3000 150000 150
Cost of Benefit Package 700000 700
Administration Cost -
10% 70
Total Cost 770
Service Taxes - 10.3% 79.31
Total Premium
Implication 849.31

23. Data
• Collecting primary data through survey
• Secondary Data: Data about morbidity rate,
utilisation rate, unit cost of treatment and
demographic profile of the community from
secondary sources e.g. Census, NSSO, SRS,
NCMH etc.

24. Thank you
Email: nehal.sanghvi@yahoo.com