Two instruments answer this question in South Carolina, they name different lists of factors, and both are on the books. S.C. Code § 38-71-920(5) names age, gender, geographic area, industry, group size and family composition as the case characteristics a small employer insurer may consider. 45 CFR § 147.102(a)(1) permits rate variation in the small group market only by whether the coverage is individual or family, rating area, age and tobacco use — and paragraph (a)(2) closes that list against everything else. This page states both, with their dates, and does not decide between them. Which instrument governs a particular policy is a legal conclusion, and it is not one we make.
What S.C. Code § 38-71-920(5) names
South Carolina’s small-group rating machinery lives in Subarticle 3 of Article 5, sections 38-71-910 through 38-71-990. The definition that answers this question reads:
“‘Case characteristics’ means the following characteristics of a small employer, as determined by a small employer insurer, which are considered by the insurer in the determination of premium rates for the small employer: age, gender, geographic area, industry, group size, and family composition. Geographic areas smaller than a county may not be used without prior approval of the director or his designee. Claim experience, health status, and duration of coverage since issue are not case characteristics for the purposes of this subarticle. The adjustment for case characteristics must be objective and meet sound actuarial practices.”
Four separate rules are packed into that paragraph. Six named factors are in. Geography below the county line requires prior approval from the director. Claim experience, health status and duration of coverage since issue are out. And whatever the insurer does with the permitted factors has to be objective and actuarially sound rather than discretionary.
The vintage matters and belongs beside the text: this subarticle was enacted by 1991 Act No. 131, § 5, and amended in 1993, 1994 and 1997, and no section of it has been amended since.
What 45 CFR § 147.102 permits, and how paragraph (a)(2) closes it
The federal rule is built the other way around — as a short list plus a lock. Paragraph (a)(1) says the rate charged for coverage offered in the individual or small group market “may vary with respect to the particular plan or coverage involved only by determining the following”: whether the plan or coverage covers an individual or family; rating area; age, within a band the rule caps; and tobacco use, also within a capped band and only as to individuals who may legally use tobacco.
Then paragraph (a)(2):
“The rate must not vary with respect to the particular plan or coverage involved by any other factor not described in paragraph (a)(1) of this section.”
That sentence is the lock. A factor is not merely unmentioned by the federal rule — it is excluded by it.
The rule has its own dates and its own scope limits, and they are as much a part of it as the list. Paragraph (g) states that the provisions of the section apply for plan years, and in the individual market policy years, beginning on or after January 1, 2014. Paragraph (h) states the section does not apply to grandfathered health plans. The section was published at 78 FR 13436 on February 27, 2013 and has been amended several times since, most recently at 83 FR 17058 on April 17, 2018.
Where the two lists diverge
On four factors the two instruments agree: individual-or-family status, geography, and age all appear on both lists, and family composition and rating area do the same work in each. Tobacco use appears in the federal list and is not named in the South Carolina definition.
The divergence is on three factors and one category. Gender, industry and group size are named in § 38-71-920(5) as case characteristics. None of the three appears in the federal paragraph (a)(1) list, and paragraph (a)(2) says the rate must not vary by any factor not on it. Claim experience, health status and duration of coverage are in a stranger position still: South Carolina bars them as case characteristics and the federal list does not contain them either — but South Carolina permits a capped adjustment for them elsewhere, which the next section takes up.
That is the whole of what can be responsibly said. The South Carolina provision is in force as published and current through the 2025 Session of the General Assembly. The federal rule is in force as published. Nothing read for this page resolves how they interact for any specific policy, and nothing on this page should be read as a statement about what any insurer actually does in South Carolina — a statute naming a factor is not evidence that anyone uses it.
Out of the base rate, into the renewal increment
The single most misquoted thing about South Carolina rating law is that the state bars health-status rating. Read one subsection and it looks true. Read the section next door and it is not that simple.
Section 38-71-920(5) keeps claim experience, health status and duration of coverage since issue out of the case characteristics — that is, out of the base rate. But § 38-71-940(A)(3) builds a renewal increase as a sum of three components, and the second of them is:
“an adjustment, not to exceed [ … ] annually and adjusted pro rata for rating periods of less than one year, due to the claim experience, health status, or duration of coverage of the employees or dependents of the small employer as determined from the insurer’s rate manual for the class of business”
The bracketed ellipsis is ours: the statute states a cap there, and this brand does not publish the figure.
The other two components are the change in the insurer’s new business premium rate across the rating period — or the change in the base premium rate for a class in which the insurer is no longer issuing new policies — and any adjustment for a change in coverage or in the employer’s case characteristics.
So the same three things that cannot set the base rate can move the renewal, within a cap, on a mechanism the insurer has to have written into a rate manual. The chapter confirms that design elsewhere: § 38-71-960(1) requires an insurer to disclose the extent to which premium rates for a specific small employer are established or adjusted due to case characteristics, family composition, class of business, and the claim experience, health status or duration of coverage of the employees or dependents of the small employer. A statute that requires disclosure of a factor is not a statute that pretends the factor is absent.
These are two different places in the calculation and they should never be blurred into one sentence.
The class of business is the frame the whole thing sits in
South Carolina does not regulate small-group rates with a single band. It regulates them through a class-of-business and index-rate structure, and the vocabulary is worth having because it is what an insurer will use when it explains a number to you.
A class of business, under § 38-71-920(9), is all or a distinct grouping of small employers as shown on the insurer’s records. A distinct grouping may be established only by the insurer, and only on stated bases: plans marketed and sold through producers not participating in the marketing of other groupings; plans acquired from another insurer as a distinct grouping; plans provided through an association with membership of not less than fifty small employers formed for purposes other than obtaining insurance; or plans provided through a common group formed solely to obtain insurance as permitted by § 38-71-730(1)(b). Beyond those, an insurer may establish no more than two additional groupings on criteria other than group size, expected to produce substantial variation in administrative and marketing costs. The director may approve more on application and a finding that it would enhance the efficiency and fairness of the marketplace.
Within a class, the base premium rate is the lowest rate charged or chargeable to small employers with similar case characteristics for the same or similar coverage, and the index rate is the arithmetic average of that base rate and the corresponding highest rate. Section 38-71-940(A)(1) constrains how far one class’s index rate may sit from another class’s, and (A)(2) constrains how far the rates charged within a class may vary from that class’s index rate. Section 38-71-940(A)(5) constrains the spread between the highest and lowest rate factors where group size is used as a case characteristic. The permitted spreads are numbers we do not print; the structure is the part an employer can actually use.
Two protections come with it. Section 38-71-940(B) requires insurers to apply rating factors, including case characteristics, consistently with respect to all small employers within a class of business. Section 38-71-940(C) prohibits involuntarily transferring a small employer into or out of a class of business unless the employer no longer meets the criteria for its existing class, and permits an offer to transfer only if it is made to every small employer in the class without regard to case characteristics, claim experience, health status or duration since issue.
The state bands are suspendable, and certified annually
Two provisions round out the state mechanism and both cut against tidy summaries.
Section 38-71-980 permits the director or a designee to suspend all or any part of § 38-71-940 as to the premium rates applicable to one or more small employers for one or more rating periods, on a filing by the insurer and a finding that the suspension is reasonable in light of the insurer’s financial condition or that it would enhance the efficiency and fairness of the small employer market. Anyone who tells you the South Carolina bands always apply has not read the section that lets them be switched off.
Section 38-71-970(B) requires each small employer insurer to file an actuarial certification with the department each March first, certifying compliance with the rating section and that its rating methods are actuarially sound.
What South Carolina bars whichever list you are reading
Some prohibitions sit outside the factor-list argument entirely, and they are the ones most likely to matter in practice.
Section 38-71-860(A)(1) bars an issuer offering group coverage from establishing rules for eligibility, including continued eligibility, based on health status; medical condition, including both physical and mental illnesses; claims experience; receipt of health care; medical history; genetic information; evidence of insurability, including conditions arising out of acts of domestic violence; or disability. Subsection (B)(1) bars requiring an individual to pay a premium or contribution greater than that for a similarly situated individual on the basis of a health status-related factor — with the caveat, at (B)(2)(a), that nothing in it restricts the amount an employer may be charged for coverage under a group health plan under applicable state law.
Section 38-93-30(B)(1) prohibits adjusting premium or contribution amounts for a group on the basis of genetic information, while (B)(2) preserves an issuer’s ability to increase an employer’s premium based on the manifestation of a disease or disorder in an enrolled individual — and forbids treating that manifestation as genetic information about other group members in order to increase the employer’s premium further.
And § 38-71-1440 governs conduct rather than arithmetic. Subsection (A) bars denying coverage to a small employer based solely on the employer’s occupation. Subsection (B)(1) bars an insurer or agent from steering small employers away from applying, or toward another insurer, because of health status, claims experience, industry, occupation or geographic location. Subsection (C)(1) bars compensation arrangements varying an agent’s pay on those same grounds. Subsection (F) bars inducing a small employer to exclude an employee from coverage. Subsection (G) requires a denial to be in writing, stating its reasons.
What an employer can actually do with this
Ask for the disclosure the statute already requires. Section 38-71-960 obliges insurers to disclose the provisions concerning their right to change premium rates, the factors that affect those changes, and a description of the class of business the small employer is or will be in. That is a written answer to “what is my rate built from,” and it is owed to you rather than granted as a favor.
Ask which class of business you are in and what would move you out of it, since the class sets the index rate your own rate is measured against. If an application is declined, ask for the written denial and its stated reasons, which § 38-71-1440(G) requires. And confirm the address the group is rated from: in the small group market the federal rule sets rating area from “the group policyholder’s principal business address,” not from where individual employees live. South Carolina draws 46 rating areas, one per county, with no county split by zip code — so the county on that one address is the whole of the geography question for your group.
The bottom line
South Carolina’s small-group rating statute and the federal rating rule name different factor lists, and both are on the books. This page states both with their dates and does not decide between them — that is a legal conclusion we do not make. What you can do is ask your insurer for the disclosure § 38-71-960 already requires.
Frequently asked questions
What are case characteristics under South Carolina law?
S.C. Code § 38-71-920(5) defines case characteristics as characteristics of a small employer that an insurer considers in determining premium rates, and names them: age, gender, geographic area, industry, group size, and family composition. The same definition adds two limits. Geographic areas smaller than a county may not be used without prior approval of the director or a designee. And claim experience, health status, and duration of coverage since issue are expressly not case characteristics for the purposes of that subarticle. The provision also requires that any adjustment for case characteristics be objective and meet sound actuarial practices.
Does South Carolina ban rating on health status?
Not in the flat way that sentence suggests, and the nuance is the whole point. Section 38-71-920(5) excludes claim experience, health status and duration of coverage from the list of case characteristics, which keeps them out of the base rate. But § 38-71-940(A)(3)(b) separately permits a capped adjustment to a renewal increase that is expressly due to the claim experience, health status, or duration of coverage of the employees or dependents of the small employer, as determined from the insurer’s rate manual for its class of business. Out of the base rate, into the renewal increment. Section 38-71-960(1) confirms the design by requiring insurers to disclose the extent to which rates are adjusted on exactly those grounds.
What does the federal rating rule permit?
45 CFR § 147.102(a)(1) allows the rate for coverage in the individual or small group market to vary only by determining four things: whether the plan or coverage covers an individual or family; rating area; age; and tobacco use. Paragraph (a)(2) then closes the list — “The rate must not vary with respect to the particular plan or coverage involved by any other factor not described in paragraph (a)(1) of this section.” Paragraph (g) applies the section to plan years beginning on or after January 1, 2014, and paragraph (h) excludes grandfathered health plans.
Can my premium change because one employee had a bad year?
South Carolina has a specific provision on genetic information that draws a line here. Section 38-93-30(B)(1) prohibits an issuer from adjusting premium or contribution amounts for a group on the basis of genetic information. Subsection (B)(2) then says nothing in that prohibition limits an issuer’s ability to increase the premium for an employer based on the manifestation of a disease or disorder in an individual enrolled in the coverage — but adds that the manifestation in one individual may not be used as genetic information about other group members to further increase the employer’s premium. Read the two subsections together; either one alone misstates the rule.
Can an insurer steer my business away because of what industry I am in?
South Carolina addresses this directly. Section 38-71-1440(A) says a small employer insurer shall not deny coverage to a small employer based solely on the employer’s occupation. Subsection (B)(1) prohibits an insurer or its agent from encouraging or directing small employers to refrain from applying, or to seek coverage elsewhere, because of health status, claims experience, industry, occupation or geographic location. Subsection (C)(1) bars compensation arrangements that vary an agent’s pay on those same grounds. And subsection (G) requires that a denial of a small employer’s application be in writing and state the reason for it.
Do South Carolina’s rating restrictions always apply?
No, and this is easy to miss. Section 38-71-980 lets the director or a designee suspend all or any part of § 38-71-940 as to the premium rates applicable to one or more small employers for one or more rating periods, upon a filing by the insurer and a finding that the suspension is reasonable in light of the insurer’s financial condition or would enhance the efficiency and fairness of the small employer market. A statement that the state rating restrictions always apply is therefore wrong on the face of the chapter that contains them.
About the author
Nate Jones, CPCU, is the founder of Wexford Insurance and Wexford Health Insurance, an independent agency placing small-business group benefits in 9 states. Nate Jones reports South Carolina’s 1991 case-characteristic statute and the federal closed factor list side by side, with their dates, rather than quietly picking the one that makes a cleaner sentence. Start with the Wexford Health Insurance quote form.