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Ratings Area and Adjustment Factors
Traditionally insurers make adjustments to the premiums they charge consumers based upon a number of variables. In the past, these adjustments may have accounted for your health status, age, gender, and residence. The Affordable Care Act standardized the factors insurers are allowed to use when calculating premiums for consumers. Under the new regulations insurers may only use a consumers age, smoking status, and area of residence (rating area) when adjusting premiums.
How Are Rating Areas Defined?
Under the Affordable Care Act each state has submitted 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 3 digit zip codes. These state groupings will be submitted to The Department of Human Health Services (HHS) for approval and will then be used by insurers to price premiums.
When insurance companies price their premiums, all households within a rating area will have the same adjustment factor applied. Households with similar age, and smoking characteristics 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 upon the projected cost of members in the specific rating area. These costs may include the costs associated with services providers, how much coverage an insurer has in a particular area, the number of members, as well as 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 exchanges. Depending on your area of residence you may have more or less options than is typical of the state.