Member-Level vs. Composite Rating

There are two ways that health insurance carriers determine premiums. The first method is called member-level rating and uses the employee’s personal details to determine price on an individual basis. The second is called composite rating and determines price using individual information at the time the plan is established, averages the price for all employees, and locks it in for the duration of the plan year.

Member-Level Rating

Rates are based on the age, zip code, and in some states, the smoker’s status of the employees and their dependents. For small group insurance, these rates are public, so we can tell you exactly what your premium will be when you enroll.

Composite Rating

Rates are calculated based on the average of the rates of all of the participating employees. This means that we cannot determine exactly what your premium will be until all employees in your company complete open enrollment and their applications are submitted. At that time, the carrier calculates the final composite rates. Once that’s done, we will tell you what your premiums will be for the year.

In some states (like Massachusetts), carriers will calculate four composite rates, which will depend on which (if any) of your family members enrolls:

  • Employee only rate
  • Employee + spouse rate
  • Employee + child rate
  • Employee + family rate

In other states (like Washington), some insurance carriers will use just two composite rates. The age of an individual determines which one applies to you:

  • Over 21 years old rate
  • Under 21 years old rate

Questions & Answers

Q: How much will the premium cost for a newly hired employee who enrolls in the middle of the plan year?

A: Depending on the carrier, member-level rating premiums will be calculated either by the member’s age and zip code at the time of their start date or the group’s start date.

Composite rates are locked in for the year based on the average demographics at the time the company began their plan year. New hire employees will have those fixed rates apply until the company renews their contract.

Q: When will I find out how much the premiums will cost with composite rating?

A: Once we hear back from the carrier with the final rate, we’ll let you know. This will be after your group has completed open enrollment and before your start date.

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