If we consider how ubiquitous the almighty credit card is these days, it’s not that hard to believe that we are well on our way to becoming a mostly cashless society. Unfortunately, this also means that ID theft and credit card fraud are steadily on the rise. The very real problem of identity theft can wreak havoc on an individual’s credit score. It could also quite possibly lead to expensive health insurance.
The proliferation of credit cards and the people who use them in their daily lives placed more importance to an individual’s credit score. Among the many factors that affect a credit score, payment history and amounts owed play the biggest roles. This score, which can range from the abysmally low 300s to the magnificently high 900s, affects a lot of aspects in our lives. It can dictate whether or not your loan application gets approved, for instance. It might not be obvious at first glance, but your credit score could also come into play when you apply for a health insurance policy.
How Credit Score Affects Insurance Premiums
At this point in time, health insurance companies don’t use credit-based insurance scores to determine a person’s health premiums. This practice is widely used in the auto and home insurance domains, however. Out of the United States’ 50 states, 46 let auto and home insurance companies use credit scores to determine premiums. Massachusetts, California, Hawaii, and Maryland are the exceptions. Given its widespread use, it’s not that farfetched to believe that it may prove to be the same for health insurance in the future.
There are a lot of factors that insurance companies take into consideration when you apply for an insurance policy before they decide on your monthly payment plan. One thing that these companies almost always does is check your credit history. By looking at your credit score, they can start assessing how much risk you pose. It all boils down to this: if you have a good credit score, you will be more likely to get a lower premium on your insurance. Conversely, if you have a bad credit score, you will more likely be charged a higher premium on your insurance.
It’s important to note that insurance companies don’t use your credit score as is. Instead, it is used to calculate what is known as a credit-based insurance score. Free Isaac describes the latter as the “loss ratio relativity of an insurance applicant (at the time of application) or policyholder (at the time of renewal)” in a white paper published in May 2011. The math used for these two correlated but separate scores often make them seem similar, but there are some very distinct differences. Payment history, for example, is around 35 percent of your credit score. On the other hand, it accounts for 40 percent of your insurance score.
Why Insurers Use Credit-based Insurance Scores
According to a report on auto insurance made by the Federal Trade Commission to Congress in 2007, credit-based insurance scores do provide a degree of effective risk assessment. The report claimed that these scores are predictive enough to make for a better and quicker matching of premiums and the degree of risk posed by consumers. The weight insurance companies place on credit reports means that ID theft prevention plays a key role in making sure that a person’s credit score is accurate.
That same report also posited that credit-based insurance scores could turn out to be a blessing for consumers. The greater accuracy that these scores give insurance companies during the risk evaluation stage may mean that customers with higher risk could still get offered insurance. The process could also expedite and make insurance granting and pricing cheaper. Any savings that an insurance company makes could be passed on to its customers as lower premiums. It’s worth noting that the benefits mentioned by the report were all theoretical as there was precious little data available to fully quantify them.
Protect Yourself from High Health Premiums
In a nutshell, being a victim of health insurance identity theft can cause an individual to end up paying premiums higher than he or she should. Much has been said about how important a good credit score has become these days. Throw in the much more paramount consideration of health into the mix and we end up with a rather volatile combination. These two facets make protecting our identities that much more essential.
A fraudster who steals somebody’s identity can charge enough items to that individual’s credit card to turn an otherwise glowing credit score to a very dismal one. Fortunately, we are not left without any resources to protect us. There are multiple, readily available ways to protect from identity theft. These can range from high-tech solutions such as up-to-date malware and spyware protection software to just being very careful with how or with whom you share your personal information. Even if it does happen, there are still ways to mitigate or outright stop any damage from occurring by employing credit monitoring services. The potential threat of higher health insurance costs is just another good reason to ensure that your personal information – and, by extension, your identity – stays safe and secure.
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