Premium Pricing In Employer Based Medical Insurance Schemes

Abstract

In health care insurance, the main problem at task is “how much?” This would pose a rather complex situation in the case that we are projecting on future possible financial scenarios. With the rising cost of medical insurance, insurance providers argue that pooling of risk is a possible way of eventually reducing the cost of medical financing in the long run. The goal of every organization that offers medical insurance to its employees is to find a precise and accurate estimate of premiums to be paid to the insurance company in the provision of essential medical services. This work takes into account several assumptions of risk including: homogeneity of risk, non-discriminatory employment and thus non discriminatory premium allocation, minimum deductibles and coinsurance. This work thus comes up with a mathematical estimation procedure stipulating the theoretical premium amounts that is contributed to medical insurers to offset the rising financial costs based on past experience on claims. Results for predictions of premiums to be paid in current times are based on claim experiences. This work then performs comparative studies on future credibility premiums based on both the Buhlman’s and the Buhlmann Straub procedures. Results show that the Buhlmann Straub procedure yields higher premium amounts. For all contracts, the individual premiumsare higher than in the case of Buhlmann procedure. This may be due to weighting of claim amounts thus reducing variance components.