It is often difficult to know exactly how health insurance premiums and quotes are calculated - for many Americans it appears to be a twisting warren of legalese and strange policies all intended to make sure that they pay as much as possible. In reality, most health insurance companies use several standard systems in order to calculate the basic rates paid by their members. Two of the most common involve the use of what is known as "community rating," which allows insurance companies to estimate the average healthcare use of people in their communities - their policyholders.

One of the most common ways to determine average healthcare insurance rates paid by a company's clients is to use the standard community rating method. In this method, premiums are calculated by estimating the average cost of healthcare across the entire community of policyholders. All policyholders are factored in - including both high and low risk groups, as well as those of all ages. This leads to an average cost for all clients, some of whom will use far less than the estimated healthcare services they have been allotted, and some who will use more. This community method allows for a pure average to be derived, and is often considered to be a very fair method for determining insurance rates.

Some companies and some insureds prefer the community rating by class method. In this method, the community as a whole is divided up into several smaller groups based on their estimated use of healthcare services. Using statistical analysis, companies organize their members into groups or classes based on a number of risk factors including demographics, healthcare history or insurance experience. The greater the risk posed by a certain class, the greater the premiums they will pay. Instead of one basic rate for all policy holders, which is then adjusted based on individual factors, a community rating by class method organizes members into groups, sets their rates from there, and then makes adjustments as necessary.

Both community rating methods allow insurance companies to spread the cost of health insurance out over a wider group, allowing lower rates for most and higher rates for a few that do not use healthcare services as much as expected. These systems make the process of assigning insurance rates far more streamlined, which also assists in keeping costs down for consumers. Before purchasing any health insurance, be sure to inquire about how their rates are determined, as well as any other mitigating factors which will affect the total cost. Reasonable rates can be found in either case, but it always pays to know what an insurance company is doing and why to avoid issues should a claim or question arise.