This leads to the crux of the situation. Health Insurance providers attract a disproportionate amount of unhealthy people to their products. This sees a healthy individual pay a higher premium to compensate for this uneven number of healthy to unhealthy individuals. So for an unhealthy person, their health insurance premium will be a great deal. But from a healthy person’s perspective, they are paying a bit more than they would have needed too if their subgroup was full of other individuals like them.
Despite this, insurers have come a long way over the years, mitigating the effects of asymmetric information and moral hazard. Through intensive research they are now able to ask more and more appropriate questions, gathering more data about the individual than ever before. In addition to this, most insurers have initiated a co-payment or deductible system to reduce the impact of moral hazard.
Deciding the dollar value to charge a client for a premium is a difficult process, that requires analysis from specially trained actuaries. This process is made even more difficult through the gaps in knowledge an insurer will have in relation to the client. Combining these understandings with the knowledge gained in part one of this series regarding the reasons why health insurance premiums continuously go up, can lead to some useful conclusions.
When contemplating whether or not to renew your policy due to an annual premium hike, ensure to compare the increase to the national medical inflation rate. If the rates are reasonably similar you can be confident your premium hike is of fair value. In addition, ensure you thoroughly read the product disclosure statement (PDS) of your policy to make sure you have adequate coverage. This knowledge allows you to accurately compare the cost of insurance provided by the various insurance providers, making sure you get a competitive offer.