Small Employer Health Insurance Rating Act
The Illinois Small Employer Health Insurance Rating Act is legislation designed to allow health insurance providers in the state to vary the premiums they charge to small businesses conducting different types of business in the state. The act recognizes that different business activities carry different degrees of risk and allows insurance providers to treat groups of businesses differently for the purposes of setting insurance premium rates.
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Business Classes
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The act recognizes the fact that workers in different industries or professions carry differing degrees of medical risk, and allows small employer insurance carriers to create separate classes of business, with different associated charges. Insurance carriers are companies providing medical insurance plans that businesses can purchase to provide benefits for their employees. A small employer, for the purposes of this act, is defined by the Illinois Health Insurance Portability and Accountability Act, which states that a small employer is a business employing at least two employees, but no more than 50. A small employer insurance carrier may create up to four classes of business.
Insurance Rates
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Where an insurance carrier has established more than one class of business, the insurance carry does not have unlimited scope when setting the price of insurance coverage charged to businesses in each class. A carrier with more than one established business class cannot set a premium charge for any one business class at a rate that is more than 20 percent higher than any other class. Within a class, the carrier cannot charge an individual business a rate that is greater than 25 percent of the index rate for that class. Carriers calculate the index rate as by taking their own base premium rate for the class and adding it to the rate they charge to the highest-paying business within that class. They divide the result by two to arrive at the arithmetic mean figure, which becomes the index rate.
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Transfers Not Allowed
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Once an insurance carrier has established that a small employer business belongs to one business class, the carrier may not transfer the business to another class if the business owner does not agree to the transfer. The act also prohibits a carrier from offering to transfer a single small employer business to a different class unless the carrier grants the offer to all the businesses of that class. This means that even if one particular business in a class has made more claims than all the other businesses in the class, the carrier must still offer to transfer that business if it makes an offer to transfer any of the other businesses in that class. This prevents a carrier from manipulating the right to create multiple classes with the intention of isolating and increasing the charges to a business making more claims than other businesses in its class.
Record Keeping
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Insurance carriers must keep certain records at their principal business office. These records must demonstrate that the carrier is following accepted insurance practices. This means that carriers must follow accepted actuarial principals for setting insurance premium rates, where actuarial practices refer to the assessment of the risk involved in providing insurance cover, expressed as a potential cost to the insurer. Insurance carriers must keep records describing how they arrive at insurance rating decisions, and these records must be backed by relevant documentation.
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