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Gender Rating in Health Insurance: Fair Practice or Discrimination?

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Throughout the fact-finding process, a million little things — from weight to social activities — can cause your client to qualify for a higher health insurance premium or be denied coverage altogether. But for nearly half the residents in 40 of the nation’s states, checking one small box can increase your client’s rates by as much as 48 percent.

The practice of gender rating — charging different premiums to clients based on whether they’re male or female — has been around for almost as long as the insurance industry, but until recently, it was generally considered fair practice in the individual market. (It has been prohibited in the employee benefits market since 1964.) After all, women typically need more health care than men because of the demands of pregnancy and family planning; according to a recent New York Times article, the typical American woman who wants to have two children will spend about five years trying to get pregnant, being pregnant, or recovering from pregnancy, and about 30 years trying to avoid unintentional pregnancies. In addition, once women surpass child-bearing age, it’s men who tend to have higher premiums on their insurance, so gender rating doesn’t only affect women.

Still, the practice of gender rating doesn’t sit right with many people, and that’s why it’s outlawed in 11 states, and heavily restricted in two others. In early 2009, Sen. John Kerry proposed a national bill that would do the same thing. But since his bill was read and sent to committee in early May, no further action has been taken on the national level. California, however, spent the greater part of the year wrapped up in a legal battle over the issue, which ended when Gov. Arnold Schwarzenegger signed a bill banning the practice into law over the weekend of Oct. 10, 2009.

The practice certainly has its positives and its negatives. To help you decide where you stand, here are some of the pros and cons of gender rating, as outlined by its most outspoken supporters and opponents.

The cons:

  • Because of the large disparity in premium pricing, many women have made sacrifices in the amount of benefits they sign up for, or have had to forgo insurance altogether (Source: The National Women’s Law Center [NWLC]).
  • Many states that allow gender rating require that any difference in rates between women and men be “justified by actuarial statistics,” which means that the rating differential must be based on true variations in health costs between women and men. Insurance industry representatives argue that gender rating is actuarially justified; they contend that premiums are higher because women, on average, have higher hospital, physician, and other health care costs than men do. In contrast, more than 40 years ago, the insurance industry voluntarily abandoned the practice of using race as a rating factor, despite the industry’s position that it was actuarially based, and several states adopted statutes expressly banning the practice (Source: NWLC).
  • Gender rating has been banned nationwide in the employer-provided benefits setting for more than 30 years. Additionally, the Supreme Court ruled that employers must treat women as individuals in the workplace, not as members of a class. So even though women as a class may have higher health costs, some argue, they should be rated individually (Source: NWLC).
  • Proposals to provide a set amount of a tax credit to purchase health insurance on the individual market will be less valuable to women than men if gender rating is allowed to continue (Source: NWLC).
  • Despite the common requirement that gender rating be actuarially justified, NWLC research demonstrates that, in practice, the use of gender rating is often arbitrary and the wide swings in rates charged could hardly be actuarially justified, thereby underscoring the dangers of allowing gender-based rates. At the outset, it is important to note that women are charged higher rates even though the vast majority of best-selling individual health insurance plans that rate based on gender that were examined by NWLC do not include maternity benefits. Of the 347 identified best-selling plans with gender-rated premiums, just 6 percent include maternity coverage in the individual health insurance policy (Source: NWLC).

The pros:

  • Gender rating allows premiums to remain lower for young men and older women. If gender rating is made illegal, premiums will likely be made higher across the board. This is already evident in the states where gender rating is not allowed (i.e., guaranteed-issue states). For example, in Massachusetts, a guaranteed-issue state, an individual policy covering a family of three costs about $17,000 a year, one of the highest rates in the country. In California, before Schwarzenegger signed the gender-rating bill, a comparable policy cost about $5,800, close to the national annual average (Source: Nicole Kasabian Evans, spokesperson for the California Association of Health Plans [CAHP]).
  • The practice is used in other insurance sectors, most notably when rating auto insurance premiums, and with life insurance (Source: CAHP).
  • According to a 2007 Milliman report sponsored by America’s Health Insurance Plans (AHIP), guaranteed-issue initiatives have the potential to cause individuals to wait until they have health problems to buy insurance. This could cause premiums to increase for all policyholders, increasing the likelihood that lower-risk individuals would leave the market, which could lead to further rate increases. If this continues, the pool or market could essentially collapse or shrink to include only a high-risk population (Source: AHIP; it should be noted that, in 2009, AHIP President Karen Ignagni said that the association believes that if everyone were required to purchase health insurance, then gender rating should be eliminated).

Armed with this list of pros and cons, you can make your choice — are you for gender rating or against it?

Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at [email protected] or 800-933-9449 ext. 225.