Which statement regarding health insurance rating systems is correct?

The correct statement regarding health insurance rating systems is that both prospective and retrospective experience rating use an employer's experience. In the context of health insurance, experience rating refers to the method where premiums are determined based on the claims history of a specific group, such as an employer's workforce.

In prospective rating, an employer’s past claims experience is analyzed to forecast future health care costs and subsequently set premiums. This method anticipates expenses based on historical data but charges premiums based on projected costs. Conversely, retrospective rating also considers the employer's actual claims experience to adjust premiums after the fact, allowing for adjustments based on the claims incurred during the policy period.

Understanding this distinction helps clarify how employers can be assessed fairly based on their unique health risks and claims experience, which leads to more accurate premium pricing. Therefore, recognizing that both rating systems rely on past experience to set premiums is key to understanding their functions in health insurance.

The other options misinterpret how these systems function. In prospective rating, the insurer assumes the underwriting risk rather than the insured, as the premium is set based on anticipated future claims rather than past incurred claims. The reference to using experience from one year for rate setting in the following year aligns with prospective rating, not retrospective rating, which adjusts based