What is “community rating” in healthcare?
“To sum it up…”
- Community rating is the practice of treating members of an insured group equally and without regard to their individual characteristics
- Community rating in the Affordable Care Act ensures that insurance companies treat individuals equally as to price and terms
- The Affordable Care Act uses a form of community rating and permits limited use of a small number of individual factors
- Community rating is the opposite of medical underwriting which considers each individual’s medical and social history to rate their risk
Community rating is a commonly used method for setting prices and terms in health insurance. Insurers often use this method in guaranteed acceptance situations like the Medicare users that choose Medigap insurance within six months of getting Medicare Parts A and B.
Using this method, the insurers treat each member of an insured group equally. The insurers offer the same terms and prices to each member.
Community rating is an advantage for consumers. They can be assured of acceptance and will not have to consider the impact of their age, location and other individual factors on the price and terms.
Comparison shopping is a tried and proven method for selecting health insurance. In community rating situations, comparison shopping helps find the best value.
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The Individual Mandate
The individual mandate requires every eligible person to get and keep qualified health insurance coverage.
Obamacare insurance policies must treat each applicant equally for price, terms, and conditions of coverage. The individual mandate has a penalty provision which those that refuse or fail to get coverage may have to pay.
The essence of Obamacare is to promote coverage and reduce the losses to the public from unpaid medical bills by those with no insurance or inadequate insurance coverage.
Obamacare requires insurers to accept all applicants without regard to pre-existing conditions. The law uses a modified form of community acceptance to set rates and coverage benefits.
Obamacare adds essential health benefits and prevention services to the requirements for qualified health insurance.
Insurance companies use risk analysis to determine whom to insure and the price of insurance. They also use it to develop exclusions in the coverage they may offer so as to reduce further any assumed risk.
The factors that underwriting considers include pre-existing conditions, medical history, social history, and increasingly credit and other financial aspects.
Medical underwriters determine acceptable risks. They place applicants in categories that run from acceptable to rejection. Sometimes the answer to an applicant involves waiting or delaying coverage while underwriters dig further into a medical issue. The process can leave applicants and consumers at a severe disadvantage.
Limited Factors in Obamacare Community Rating
The Affordable Care Act offers insurers a limited use of several individual factors when setting prices and coverage. They can use these factors but only within the scope of the rules that limit their impact.
Insurance companies before the ACA frequently charged up to five times the amount for older members of a group when compared to the youngest member. The ACA limits the use of age in pricing to no more than three times the amount.
The below-listed items describe the limited use of individual rating factors in Obamacare:
- Age – The ACA rules limit the increase to three times the amount charged for the youngest group member. The rule acknowledges that age is a good faith factor in risk of substantial medical expenses.
- Location – The insurers can raise prices based on location. The availability of services in a given geographic area is not within the control of the insurer. Some areas such as rural counties have low levels of medical care providers per capita. This low level of competition and availability affects prices.
- Tobacco usage – The numbers of illnesses and chronic conditions attributed to tobacco usage make this an excellent target for financial incentives. Persons with smoking or other tobacco habits must pay more. They can get relief by quitting and then rates will go down for them.
- Type of Obamacare policy – The insurers can charge based on the level of coverage the consumer selects. Platinum is the highest level with ninety percent covered benefits. Bronze is the minimum at sixty percent covered benefits.
- Family versus individual coverage – Insurers can charge more for family coverage than individual coverage. The rules limit the range of discretion, but the rules allow a small differential.
Medical Underwriting the Root of Price Discrimination
Private insurance companies wielded life and death power over consumers by a standard that related to nothing so much as their profits and expenses. The insurance industry theories on pre-existing conditions are an example.
Gender bias charged women more because they either had or could have children. Some insurers treat pre-existing conditions as if they were personal faults like overeating or smoking tobacco products.
Many people are born with some condition that shows itself at some point in life. It is often a matter of genetics and beyond human control. Insurance companies reacted to gender and such naturally occurring conditions with refusals to insure, discriminatory pricing, and limits or exclusions.
The Sick Need Coverage Too
Insurance companies have grown rich and powerful by offering insurance to employees of major corporations. In these situations, the insurance providers use a form of community rating and sometimes add costs or particular terms for individual cases.
A company is more likely to insure a young and healthy group of workers, especially when paid by the large corporate employer.
Insurance providers used far more selectivity in the individual and family markets. The compelling cases of children born with defects and conditions requiring intensive care are excellent examples.
Sickness is not a Moral Failing
Among the reasons given for extensive medical underwriting is that the sick should pay more. Some contemporary commenters and political figures seem to associate pre-existing conditions with fault. Indeed, some behaviors like smoking or sedentary lifestyles may cause self-induced illness.
However, a vast majority of people who were refused coverage probably had nothing to do with their genetic make-up or the medical conditions that require treatment.
The Affordable Care Act took that power away from private insurers, and they could no longer pick and choose the risks they found acceptable.
Community Rating is a Key to Obamacare
Price and terms are essential to the consumer and their sense of fairness. The individual mandate requires insurance, and it would work to the consumer’s disadvantage to be trapped in a system that punished their health conditions and medical history.
Similarly, universal acceptance would mean little if insurers were free to take advantage of consumers by charging rates based on their status and gender. Before the ACA, this practice created unfairness, and it included charging women more for having children.
Comparison shopping is the best way to select health insurance for an individual or family situation. Comparison shopping helps focus on the costs and features that matter most to the consumer.
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