What Is An Insurance Rating Area?

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Where you live is one of the five factors health insurance companies use to set your rates. Your insurance rating area is the geographical boundary used to help determine how much you'll pay for health insurance.

Depending on your state, your insurance rating area is based on either your county, your metropolitan statistical area or the first three digits of your ZIP code.

Ratings area and adjustment factors

The Affordable Care Act (ACA) standardized the factors insurers are allowed to use when calculating premiums for consumers. Under the current regulations, insurers may only use a consumer's age, smoking status, plan category, number of dependents and area of residence (rating area) when adjusting premiums.

How are rating areas defined?

Under the Affordable Care Act, each state had to submit a plan to divide up the areas of the state into locations called rating areas. Depending on the state, these geographical units will either be made up of counties, metropolitan statistical areas or the first three digits of ZIP codes. These state groupings were submitted to the Department of Health and Human Services (HHS) for approval and are used by insurers to price premiums.

When insurance companies price their premiums, all households within a rating area will have the same adjustment factors applied. Households with similar ages and smoking characteristics who are buying the same plan will pay the same amount for premiums. Depending on the rating area you live in, the prices you pay may be higher or lower than the state average.

How does my rating area affect me?

Insurers determine the factors applied to a rating area based on the projected cost of members in the specific rating area. These costs may include the expenses associated with service providers, how much coverage an insurer has in a particular area, the number of members and the demographic profile of the area. With the limitations on how insurers can determine premiums, rating areas will likely become the key variable in how insurers price groups of people to account for differences in population profiles.

In addition, insurance coverage for particular plans and companies may only be offered in select rating areas. Insurers are not required to offer insurance plans statewide when developing plans and networks for sale on the ACA exchange. Depending on your area of residence, you may have more or fewer options than is typical in the state.

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