DECISION OF UNCERTAINTY

Decision of Uncertainty

Decision of Uncertainty

Introduction

Life insurance is cheap for those with good health and low risk lifestyles. But if you don't fall into either of those categories, you can expect to pay anywhere from a few pence to many pounds more per monthly for your premiums. Several factors contribute to the amount you pay-some are factors you can control, and some are not. The falling cost of life insurance is due in part to the increased life expectancy of both men and women, with women's higher life expectancies giving them access to slightly lower premiums.

General population trends such as the tendency to live longer affect insurance premiums across the board. For individuals, much more specific factors affect the monthly cost of life cover, and even though the cost has decreased in general, certain lifestyle and health factors can increase the costs considerably.

For life insurance companies, determining insurance premium is about assessing the level of risk and assigning a monthly premium cost to match it. In very general terms, the more likely the insurance company believes you are to die while the policy is in effect, the more they will charge you for insurance.

Health insurance coverage that people buy directly from health insurers is referred to as individual (non-group) health insurance. The individual market is the main source of health insurance for Americans who are not eligible for employer-based private health insurance or public health insurance (McGann, 2008). In 2005, 4.6 percent of the non-elderly population (12.1 million people) was covered by individual health insurance compared with 66.8 percent (174.0 million people) who were covered by employer-based health insurance at some point during the year. Using data from the 2002 and 2005 Household Component of the Medical Expenditure Panel Survey (MEPS-HC), this Statistical Brief examines the changes in premium levels and the population with individual health insurance from 2002 to 2005. The MEPS-HC is representative of the civilian noninstitutionalized population and therefore enables nationally representative estimates of premium levels in the individual insurance market.

Scenario

XYZ Health Plans provides health insurance coverage for several hundred thousand people in a given geographic area. The plan is confronted with rising costs due to standard health care inflation and some particular risk factors that appear in XYZ's coverage area. As a result, it has been determined that a premium increase is necessary in the coming plan year. Unfortunately, this also creates uncertainty about the amount of premium increase that is “tolerable” to the insured patients before they decide to change plans, drop coverage, or seek some other alternative options. The leadership of XYZ is interested in determining the perceived “breaking point” for current plan enrollees with regard to anticipated monthly insurance premium increases.

Research Question

How high might premiums rise before enrollees decide it is too much and search for alternative health coverage?

Methodology

A pilot study was undertaken to evaluate the risk level of the premium increase presented to insured patients and employers. To evaluate this question, a random sample of 40 current enrollees was surveyed ...