Reform laws require all insurance carriers offering small group health benefits coverage in New Jersey to abide by specific underwriting standards.  Most of the actuarial weights or risk measures can be left to the discretion of the carrier, but the factors used in determining risk are clearly defined within the legislation.  There are only four basic factors that carriers can use in formulating rates for an employer: ·          Age ·          Gender ·          Geography of the employer's home office (physical location) ·          Enrollment status of the covered employees (single, husband/wife, family, parent/child(ren)) ·          *those waiving coverage may be included in initial rate calculations in order to conservatively assess risk and avoid adverse selection. Age has a significant impact on quoted rates.  Generally, the average age is assessed on the eligible or covered group as a whole.  The older the group as a whole, the higher the group's rates will be.  Furthermore, as the group becomes progressively older, all other things remaining the same, the premium costs will increase. Gender plays an important role in determining health risks.  Carriers use statistical and trend data to better understand the risk discrepancies between males and females.  For example, females are obviously bare children, predominantly in certain age categories, and this will carry a greater weight in tabulating risk.  Certain diseases become more prevalent in aging males than aging females.  This affects claims costs, therefore the risks assigned to males within certain age grouping.  Again, the group is lumped together to formulate an overall risk associated with the gender mix. Enrollment status recognizes the risk associated with single enrollees versus those enrolling both themselves and dependents.  Child dependents typically help dampen risk since the incidence of costly claims is lower.  A spouse may raise the risk factor slightly, or may have little impact. Geography refers to the physical location of the company, not the employees' residences.  Carriers can rate small businesses based on the county they preside in.  Geography is independent of the other factors and remains constant (as a percentage) regardless of group size, age-mix, gender-mix, or enrolled employees and dependents.  Statistical data collected by the carrier is used to assign heavier risk to certain counties based on demographics, mortality rates, etc. Age, gender, and enrollment status are not necessarily independent factors.  Each effects the other. So age by itself, though is holds a certain level of risk, will also be persuaded by the fact that it pertains to a male or a female, or a single male as compared to a male with covered dependents. (Again, health conditions do not effect rates and are not calculated into the risk.)  The actuarial weight assignments, however, are regulated by the State.  Once again, the purpose of the regulation is to promote fair competition and cherry picking.  The risk that a carrier assigns to its most undesirable risk cannot be more than two times, (2:1 ratio) that of its most favorable risk.  For example, a carrier cannot assign a risk to its highest rated group that is more than 200% of the premiums charged to its lowest rated group. When Reform first began in 1994, that risk ratio was permitted to be 3:1. In January, 1995, the 2:1 ratio was implemented.  Currently, the State is conducting studies to determine the effects of moving to a pure 1:1 ratio where all employers are charged the same price for a given product.  When rates are based on a 1:1 rating methodology, they are called "community rates."  Basically, this means that the carrier files a rate with the State that is valid for all small employers regardless of the four risk factors specific to any one employer. In other words, the rate is the rate.  Though the 1:1 rating method is not yet mandatory, a carrier currently can opt to file rates in this manner. Most carriers use the 2:1 risk ratio measures.  Therefore, they will require an employer to provide a census of the company reporting the physical location and the demographic factors specific to each eligible or covered employee (age, gender, and enrollment status).  Again, each employer will receive a unique rate quote based on their location and employee census.  Since those rates are specific to that employer, they are referred to as "composite rates."  Composite rates simply mean that the employer will be provided with rates for each of the following categories after the group's aggregate risk has been determined: Single (or employee) ·          Husband & Wife (or employee and spouse) ·          Family (or employee, spouse, and children) ·          Parent & Child(ren) (or employee and children) This categorization of rates is appropriately referred to as "four-tiered rating."  Every single employee enrolling under the plan will be have the same rate, regardless of age or gender; every family will have the same rate regardless of age or gender, etc. Community rates also provide four tiers of rates.  But as previously mentioned, they are universal for all small employers and are not specific to any one employer.  Accordingly, carriers offering community rates will not require a census or location to calculate rates.  They will merely provide their current rate sheet to the employer that lists the premiums associated with the plans being offered and the options within each of those plans. Finalized rates (community or composite) are non-negotiable and must be filed with the State quarterly, or upon change.  Rates are guaranteed for one year from final carrier approval (NOTE: changes made to the plan, or additional plans offered after the inception date of the original contract are only valid until the original contract anniversary date and will be re-rated along with the original policy).