Health insurance companies have 2 methods for determining premiums: member-level rating and composite rating.
In member-level rating, premiums are assigned based on each member's individual risk level, based on factors such as age and zip code. Composite rating allows insurance companies to assign rates based on the overall risk profile of a whole company.
Composite rates are calculated in a unique manner. Instead of assigning each employee a rate based on the individual age and zip code, the carrier takes an average of premiums for all enrolling employees to determine one rate for each enrollment type.
Most commonly, composite rates are expressed as distinct rates for the following enrollment types:
- Employee Only
- Employee + Spouse
- Employee + Child
- Employee + Family
This means anyone enrolling in the company with a spouse only will pay the same rate, regardless of where they live or how old they are. Similarly, all people enrolling as individuals will pay the same rate, and so on.