How Do Ratings for Health Insurance Companies Work?
Independent agencies rate health insurers on their financial strength, assessing the insurer’s business model, leadership, and other internal and external factors. While each agency employs its own metrics and grading system, they all evaluate the same central question: Can the insurer actually pay out claims, even when facing significant financial strain, such as a natural disaster or economic downturn?
While reviewing ratings is a key step in choosing a policy, there’s more to a company than its financials. You should also research customer reviews and complaints to find a high-quality, customer-friendly health insurance company. Then, compare the individual health plan’s rating to find the best option within your budget.
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The Importance of Ratings When Choosing a Policy
When searching for a new policy, you already have much to consider, like your budget, coverage level, preferred providers, and type of plan. Adding another metric to track might feel unnecessary, but evaluating a company’s reliability is essential. Insurers might offer low premiums or clever advertisements, but they must also deliver on those promises.
A good health insurance plan helps you access the care you need at a cost you can afford. Thankfully, most established insurance companies maintain solid ratings. Working with any insurer might still pose challenges, but opting for a tried-and-true company can save you trouble down the road.
Types of Ratings
To make an informed decision before enrolling in a new plan, evaluate the company’s financial strength and customer experience.
Insurance companies are primarily measured by their financial stability. To determine this, ratings agencies look at a slew of factors, including:
- Company history
- Management stability
- Age of company
- Operating performance
- Debt-to-asset ratio
- Cash on hand
- Revenue stream diversification
- Risk management
- Quality of insurance policies
Ratings agencies often use publicly available data, but performing this level of evaluation yourself would pose a challenge. Financial ratings provide an expert opinion about an insurer’s quality and ability to pay claims. It’s easy to find health insurance company ratings online, and doing some research upfront will pay off later.
After all, the primary reason for purchasing insurance is to help you pay for healthcare. If you have a prolonged hospital stay or undergo expensive medical treatment, you should be able to trust your insurer will pay your claims promptly and efficiently. Choosing a strongly rated company helps ensure this.
Of course, how an insurer treats its beneficiaries also matters. Once you’ve determined a potential insurer can cover you financially, research its customer reviews. Negative reviews might indicate the company has poor customer service or that getting coverage or receiving your payout will be difficult.
A few organizations offer insights into customer experience. Start by exploring these websites:
- The National Association of Insurance Commissioners (NAIC) logs complaints against insurance companies to determine its complaint index score. Search the NAIC index to find an insurer’s score and overall trends.
- J.D. Power measures customer satisfaction across 147 health plans. Each year, it publishes a report detailing the highest-ranking plans.
- Better Business Bureau reviews provide a snapshot of customers’ experiences. The organization rates companies based on their history, transparency, and complaint resolution.
When reviewing customer comments, look for trends. People are more likely to write negative reviews than positive ones, so one scathing comment might not represent a majority of experiences.
How to Interpret Different Rating Systems
Researching financial quality ratings can be confusing since each agency follows its own methodology and grading system. For most large insurance companies, you can compare ratings from five leading independent agencies:
- A.M. Best
- Standard and Poor’s
- Kroll Bond Rating Agency
A.M. Best exclusively rates insurance companies and has become the most prominent health insurance rating agency over its long history. Other companies offer another perspective and rate across multiple industries. Since each agency uses its own metrics, they often get different results. It’s best to look at multiple sources to make the most informed decision.
To compare ratings, first check the agency’s grading scale. An A+ rating might seem perfect, but it is not equivalent across agencies. A.M. Best, for example, awards an A+ as its second-highest score. And Standard & Poor’s scale starts at AAA, ranking A+ as 5th.
Keep in mind that insurers might only advertise their highest rating or the most positive parts of their report. Rather than depending on the company’s website, search for ratings from two or three independent agencies. If an insurance company receives high marks across the board, it’s likely a safe bet.
Should You Factor Ratings Into Your Decision?
Financial ratings and customer reviews are readily available online, but remember to take each insight with a grain of salt.
Ratings provide a helpful starting point when deciding which policy to purchase. Some of the benefits include:
- An expert third-party view of the company. Instead of depending on a company’s promises or advertising, quality ratings offer an assessment from financial professionals with a broad scope of information and expertise.
- A quick comparison between insurers. Ratings offer a simple, standardized way to assess multiple companies simultaneously.
- An assessment of customer service. Reviewing complaints and overall trends helps you predict how easy it will be to work with a prospective company.
However, you should not depend on any one score or review to make your decision. Consider the following drawbacks of insurance ratings:
- Not all companies or plans have ratings. Smaller or regional insurance companies may not receive financial ratings, but it does not mean the plan is low-quality.
- Ratings are not infallible. Agencies cannot predict catastrophic events or sudden economic downturns. A high-rated insurer could still default.
- No single metric gives the complete picture. When insurance companies receive vastly different scores between ratings agencies, it can be challenging to understand why. Similarly, positive or negative customer comments might not represent the majority of experiences.
How Individual Plans Are Rated
Just as insurance companies receive financial ratings and complaint index scores, individual health plans receive quality ratings. This applies to plans offered in the federal Marketplace or state health insurance exchanges. Health plans earn an overall score of up to 5 stars, plus star ratings on three key aspects:
- Member experience: The key factors to assess in member experience are the ease of getting appointments and how satisfied members are by their doctors and healthcare.
- Medical care: It’s essential to asses how well plans manage patients’ medical care. Do they offer preventative screening and adequate monitoring?
- Plan administration: Lastly, you want to understand how efficiently the plan is managed. Does it provide reliable customer service, easy access to information, and appropriate care?
Individual plans can also earn Health Plan Accreditation from the National Committee for Quality Assurance (NCQA). The nonprofit NCQA assesses consumer experiences and clinical performance. This helps organizations identify gaps and improve performance within plans.
Health plan ratings provide valuable insight, especially when you combine these scores with your overall assessment of the insurance company.
All in All
Health insurance should support you when you need it most. Ideally, your health plan will fit into your budget while boasting solid financial ratings, positive customer reviews, and 5 stars across the board.
However, that is not always realistic. Instead, you may have to choose which aspects are the most important to you. Set aside time to thoroughly research your options, and stay organized by tracking each company’s metrics on a spreadsheet. Compare ratings for each insurer and individual plan to find the best option for you.