Composite Rate

Insurance companies spend 400 billion hours figuring out what to charge their customers in the form of premiums. But rather than coming up with a health or life insurance premium for each person that works for the same company, for example, a composite rate is established.

This rate is obtained by reviewing the risks of a group after each individual is asked about their age, medical history, address, whether they smoke or drink, and the likelihood that they will be filing claims. Then the risk profile for the entire group will be determined, and they will come up with an average. The insurance rate for all individuals in that group will be the same, no matter what their individual profile looks like. Those who come out ahead with a composite rate include people over a certain age, less healthy people, and those with children or spouses with medical issues.

After the composite rate is provided, it will most likely be adjusted again the following year when it's time to renew. This is especially true if the company has hired a lot of new employees, if more people are enrolling children or spouses, or even if fewer people enroll.

If an insurance company is expecting to enroll 100 employees, of whom 80 are very healthy...if they lose any of those healthy employees, it could throw off their composite rate. Kind of like Obamacare if healthy people in their 20s and 30s are no longer required to buy insurance.