How Are Health Insurance Rates Determined?


| 2 min read

If you buy your own health insurance, chances are your costs have fluctuated in the past few years. Last year, nearly a quarter of Blue Cross Blue Shield of Michigan members who enrolled on the Marketplace experienced reductions of $500-$1000 in their monthly premiums. At the same time, many people saw an increase in their monthly premiums. This year, costs are changing once again and people are seeing both increase and decreases in their insurance rates. How are premiums calculated and why is yours changing? The Affordable Care Act (ACA) requires insurance companies to use member-level rating factors to determine premiums for both individuals and small group employers. Here’s a breakdown:

Factors that do not determine what people pay:

Premium: The amount an individual person pays each month for their health plan. The plan may cover dependents (spouse, kids), in which case the premium would include cost for all covered family members People with employer-sponsored coverage will pay for a portion of their total monthly premium, with the employer paying the rest.
  • Gender: Insurers can’t charge women more than men for the same policy.
  • Claims experience: Insurers can’t increase premiums based on the consumer’s past claims.
  • Health status: Insurers can’t charge more for insurance based on a person’s health status.

Factors that do determine what people pay:

  • Tobacco use: Insurers can charge tobacco users up to 50% more than those who don’t use tobacco.
  • Geography: The state of Michigan has defined 16 rating regions for use in both the individual and small group market. Medical use and cost in each region can impact premiums.
  • Family size: Consumers will pay more for their health plan if they add dependants to the coverage.
  • Age: Regulatory criteria require that rates increase each year (about 2%) based on age.
  • Consumer income: A consumer’s income may fluctuate, creating an increased or decreases subsidy – having an overall impact on premium cost.
  • Second lowest silver plan: The second lowest silver plan impacts subsidy amounts at the county level. Subsides are based on the second lowest silver plan’s premium in the county.
  • Insurer base rates: Insurance companies may increase or decrease rates based on a number of actuarial factors.
For more health insurance tips read our Health Insurance 101 blog series, visit or follow the hashtag #Covered101 on our social channels. If you have a specific question, please submit your query online through our Customer Action Center. Photo Credit: Pawel
MI Blues Perspectives is sponsored by Blue Cross Blue Shield of Michigan, a nonprofit, independent licensee of the Blue Cross Blue Shield Association