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Rating of Benefit Plans

Experience rating denotes the technique of determining how to adjust premiums based on the previous loss experience. It determines compensation insurance as it assumes that the anticipated loss experience can be predicted by the previous sustained damages. Experience rating is a fair mode of establishing benefit premiums; however, it not used every time to rate benefit payments as it exploits work teams.

As a rational approach, experience rating evaluates benefits premiums through comparing work teams to other workforces in a particular industry. For example, it likens teachers to other teachers and doctors to other doctors. Consequently, the technique averages the loss experienced to identify a modifier, ensuring that it promotes fairness in the calculation of compensation benefits.

Experience rating fails to calculate compensation benefits at all times since it is limited to enterprises that fulfill state eligibility requirements. Laws vary from one state to another and demand that for a business to apply experience rating, it must have been operational for a specific period,...