What factors Impact Health Insurance Premium?

Let us understand the several factors that impact the premium of health insurance with the help of an example:

Nihar Pandya logged on to the sites of various insurance companies and insurance web aggregator portals to find out the details of various health plans and their corresponding premium rates. Nihar is currently looking for a health plan that charges nominal premiums in lieu of a handsome coverage amount. He finds that all the insurance companies charge premiums differently. 

Nihar seeks to find answers to the following questions:

1. Are premiums charged randomly by insurance companies?
2. What are the factors affecting health insurance premium rates? 

Most people, like Nihar, compare the premium rates of every health insurance plan before choosing the one that suits their budget. However, not many are aware of factors that insurance companies take into consideration while determining the premium amounts they would charge from their customers. While there may be multiple reasons particular to each insurance company, the common factors affecting health insurance premiums include:

• Pre-existing disorders: Before agreeing to health insurance proposals, many companies require their customers to go through some mandatory medical tests. These health records help companies determine if their customers are already suffering from pre-existing disorders and the propensity to seek treatment within the waiting period. Depending on the seriousness of the disease and the quantum of risk associated with their health conditions, insurers may decide to reject the proposal or cover the customer at increased premium rates. 
• Medical history: Customers with a history of ailments running in their families will be charged higher than those hailing from a healthy background. This is because such people are more likely to seek treatment for their genetic disorders, thus posing a high risk of financial burden for insurance companies involved in claim settlement. 
• Body Mass Index (BMI): When was the last time you had exercised? While this may seem like a rhetoric question, the answer to it determines your premium payment throughout the policy period. This is because insurance companies charge more premiums from customers with a high BMI as the latter are more vulnerable to serious health problems like heart diseases, joint problems, diabetes and others. Also, female policyholders with a higher BMI are more likely to seek claims on expenses incurred on treatments including pregnancy too. 
• Addictive habits: Dependence on cigarettes, alcohol or snuff can result in serious health disorders. Insurance companies realise that addicts are more likely to be hospitalised and seek treatment. This explains why insurance companies charge more premiums from customers who smoke, drink or consume tobacco in some form or the other. 
• Age: Age is not just a number, especially, for insurance companies that charge premiums from their customers accordingly. Young people are required to pay much lower premiums than their aged counterparts. This is because young people are less likely to suffer from health problems or seek treatment for critical illnesses, thus reducing the quantum of risk faced by insurance companies. 
• Marital status: Insurance companies in India, till date, have been unable to submit any well-validated reason for charging low premiums from married people. This implies that being married gives Indian men the benefit of paying less than their unmarried peers. 
• Residential status: Insurance companies are interested to know where their customers stay or live. This is because their residential locality or region has a determining effect on the health of the policyholders that, in turn, affects premium charges. The place of residence has a direct bearing on the quality of food and water consumption. Climatic conditions and cultural aversion to exercise are other factors that decide the quality of health of the policyholders. This explains why insurance companies are keen to know about the place where their customers come from before deciding the premium rates. 
• First-time policyholders: Insurance companies seek details about their existing insurance status and the policies their customers have bought till date. Insurance companies charge higher premiums from people who are buying health insurance for the first time in their lives. This is because such people are at a greater likelihood to be hospitalised and get the necessary treatment and claim, from the insurance companies, the expenses incurred on their medical treatment.