Insurance plans under the Affordable Care Act, or Obamacare, calculate monthly premiums the same way as standalone insurers, based on the underlying cost of care – doctor’s visits, hospitalization, new medical technology, liability, entitlements and taxes and administrative costs. Then, actuaries compile average costs by coverage area to calculate premiums.
Unless an applicant qualifies for health care through Medicare or Medicaid (or other government programs), healthcare insurance under the Affordable Care Act comes through private insurers who are qualified to offer plans through the National Health Insurance Marketplace at Healthcare.gov.
As of 2015, formulas for national healthcare policies use data on insurance premiums from 46 states and Washington, DC. Using formulas they have developed to average out premium costs – and risk – across their pool of policy holders, insurers take into account health data and risk factors to calculate rates by city, county, state and region. Their calculations take into consideration where the applicant lives, his health and his age, income, number of people in the family and number of people covered by the policy.
For instance, someone who lives in a high-crime area pays a higher premium than someone living in a safer area because he’s more likely to get hurt and represents an increased risk to the company. Likewise, someone who lives in a low-risk area but has a chronic health condition also pays a higher premium because the company incurs more risk by insuring him.