This question is about determining health insurance premiums. It has several par

Question

This question is about determining health insurance premiums. It has several parts. Please address every part of this question and number your responses (#1, #2, #3, etc.) 1. For 2 points: What does it mean to determine premiums using an "experience rating"? Answer using 1-3 full sentences. Be very clear and define your terms. If the instructor has to guess what you mean, you will not earn full credit. 2. For 2 points: What does it mean to determine premiums using a "community rating"? Answer using 1-3 full sentences. Be very clear and define your terms. If the instructor has to guess what you mean, you will not earn full credit. 3. For 4 points: Which type of rating is more fair, AND WHY? This question is asking for your opinion, which cannot be "right" or "wrong;, but you will be graded on how well you defend your answer. Fully explain WHY you are making the choice that you are making. This should be AT LEAST 2 sentences, but likely you will need more to explain your

Explanation / Answer

#1 Insurance companies use rate restrictions to determine premiums. Experience Rating method is the one in which premiums depend upon the risk experienced by insureds and the frequency of their claims. In this method, the class of insureds claiming for loses frequently are identified and on the basis of this experience, the future insureds are categorized and hence premium is charged accordingly.

#2 In case of Community Rating, all insureds belonging to a particular community are charged same rate of premium irrespective of their age, gender, or other demographic criterias.

#3 In my opinion, experience rating is better than community rating as it reduces chances of unfair treatment. The main purpose of insurance is to cover risk of the insured. Thus, it is suitable to charge premiums as per the associated risks. For instance, a health insurance using experience rating will charge high to those people who have major health issues or are aged and lower premiums to young and healthy people. However community rating would deal with all people as one. Irrespective of their age or health status, all will be charged same premiums because they belong to a particular community. This may be unfair for young and healthy people. Moreover using experience rating method would motivate people to remain healthy in order to reduce their premiums. Thus, experience rating is more useful and appropriate method of determining premiums for insurance.

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