What Is An Insurance Ratings Area?

Traditionally, insurers alter the premiums they charge customers based on a variety of factors. Previously, these modifications may have taken into account your health status, age, gender, and place of residence.

Ratings area and adjustment factors

The Affordable Care Act standardized the elements that insurers can use to calculate prices for consumers. Under the new rules, insurers can only alter premiums based on a consumer's age, smoking status, and place of residency (rating area).

How are rating areas defined?

Each state has submitted a plan under the Affordable Care Act to divide the state into locations known as rating areas. These geographical units are made up of counties, metropolitan statistical regions, or three-digit zip codes, depending on the state. These state groups will be submitted to the Department of Human Health Services (HHS) for approval before being utilized to price rates by insurers.

When insurance firms price their premiums, the same adjustment factor is used to all families within a rating area. Households with similar ages and smoking habits who purchase the same plan will pay the same premiums. Prices may be more or cheaper than the state average depending on the rating region you live in.

How does my rating area affect me?

The variables used to a rating region are determined by insurers based on the estimated cost of members in that rating area. These costs may include the costs of service providers, the amount of coverage an insurer has in a specific location, the number of members, and the demographic profile of the area. With constraints on how insurers may calculate rates, rating areas will most likely become the major variable in how insurers price groups of people to account for disparities in population profiles.

Furthermore, insurance coverage for specific plans and firms may be available exclusively in certain rating areas. When establishing plans and networks for sale on the exchanges, insurers are not compelled to sell insurance coverage statewide. Depending on where you live, you may have more or fewer alternatives than the rest of the state.