Premium rating like every other insurance has to consider the liabilities that are expected to be incurred by members. In respect of Health Insurance the liabilities will be mainly determined by demographic conditions, incidence of sickness and the distribution function of medical claims. We have derived the functional relationship between premium and there variables, making allowance for expected expenses and contingency reserves. Sicknesses are of various categories, sickness of long duration and heavy medical bills, medium duration and short duration with light bills.Premium rates are designed to follow each category unlike the straight deductions from salaries to cater for all types of sickness. The expected medical expenses is obtained by taking account of the incidence of sickness, age of the individual, medical expenses incurred and the life table of the population. Health Insurance is categorized into three different packages, high, medium and heavy medical bills and their corresponding premium is calculated.

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