Community rating

Community rating is most often found as part of health insurance systems in various countries

Community rating is a concept usually associated with health insurance, which requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons without medical underwriting, regardless of their health status.

Pure community rating prohibits insurance rate variations based on demographic characteristics such as age or gender, whereas adjusted or modified community rating allows insurance rate variations based on demographic characteristics such as age or gender.

Concept

Community rating, as a basis for premium calculation, is fundamentally different from the usual method of determining insurance premiums, i.e. risk rating. In a risk rated insurance market, an insurer calculates the premium payable by a potential policy holder in order to enter into an insurance contract on the basis of various factors particular to that individual, such as the risk of a claim occurring, and the value of any such claims during the term of an insurance policy. In a community rated market, the insurer may not calculate premium on the basis of the risk factors attaching to the particular person wishing to purchase an insurance contract, but rather the risk factors applying to all persons within the market as a whole. Thus, in a community rated market, the insurer evaluates the risk factors of market population, and not those of any one person when calculating premiums.^[1] Some form of risk equalization also often exists in a community rated system.

• Health insurers vary premium rates based on case characteristics, such as:
  • benefit design
  • family composition
  • demographic characteristics:
    • age
    • gender
    • geographic area
    • occupation
    • industry
  • lifestyle factors:
    • tobacco use
    • weight
  • health status and claims history

• Community rating — prohibits insurers from varying rates based on health status or claims history
  • Pure community rating — allows insurers to vary rates based on benefit design and family composition only
    • Limited variation in rates by geographic area is sometimes included in the pure community rating category (e.g. New York)
  • Adjusted (modified) community rating — allows insurers to also vary rates based on demographic characteristics (e.g. age and gender) and lifestyle factors (e.g. tobacco use)
• Guaranteed issue — requires insurers to issue insurance to any eligible applicant without regard to health status or other case characteristics
  • The federal HIPAA Act of 1996 requires that all small group (2 to 50 employee) health insurance be guaranteed issue
  • Five (Maine, Massachusetts, New Jersey, New York, Vermont) of the seven states which require community rating for individual health insurance also require its guaranteed issue

Occurrence

Community rating of supplemental private health insurance:

• Australia — lifetime community rating of private hospital insurance supplemental to universal publicly-financed hospital insurance^[2]
• Ireland — pure community rating of all private health insurance supplemental to universal publicly-financed health insurance^[2]

Community rating of basic private health insurance:

• Netherlands — age and gender rating illegal = pure community rating; individual guaranteed issue
  • individual mandate with low-income government subsidies for 40% of households^[3][4]
• Switzerland — age and gender rating illegal = pure community rating; individual guaranteed issue
  • individual mandate with low-income government subsidies for 40% of households^[3]
• within the United States:^[5]
  • Community rating for individual and small group (2 to 50 employees) health insurance:
    • New York — age and gender rating illegal = pure community rating; individual guaranteed issue
    • Vermont — age and gender rating illegal = pure community rating for small group health insurance;^[6] individual guaranteed issue
      • age and gender rating illegal = pure community rating for individual health insurance from BlueCross BlueShield and HMOs
      • age and gender rating combined limited to 1.5:1 (150 percent) for individual health insurance from other insurance companies
    • Maine — age rating limited to 1.5:1 (150 percent); gender rating illegal; individual guaranteed issue
      • smoking status rating unlimited
    • Massachusetts — age rating limited to 2:1 (200 percent); gender rating illegal; individual guaranteed issue
      • individual and employer mandates with low-income government subsidies or exemptions
    • New Jersey — age and gender rating combined limited to 3.5:1 (350 percent); individual guaranteed issue
    • Washington — age rating limited to 3.75:1 (375 percent); gender rating illegal
    • Oregon — age rating unlimited ; gender rating illegal
  • Community rating for small group (2 to 50 employees) health insurance only:
    • Maryland — age rating limited to 2.8:1 (280 percent); gender rating illegal
    • New Hampshire — age rating limited to 4:1 (400 percent); gender rating illegal
    • Rhode Island* — age and gender rating combined limited to 4:1 (400 percent)
      • *health status rating limited to ± 10% of community rating
    • Colorado — age rating unlimited; gender rating illegal
    • Connecticut — age and gender rating unlimited
  • No community rating, but age rating limited and/or gender rating illegal and/or health status rating limited:
    • Age rating limited in individual health insurance: to 3:1 (300 percent) in Minnesota, to 4:1 (400 percent) in New Hampshire, to 5:1 (500 percent) in North Dakota and South Dakota^[7]
    • Age rating limited in small group health insurance: to 3:1 (300 percent) in Minnesota and South Dakota^[8]
    • Gender rating illegal in individual health insurance in: Minnesota, Montana, North Dakota^[7]
      • Gender rating limited to 1.2:1 (120 percent) in New Mexico^[7]
    • Gender rating illegal in small group health insurance in: California, Iowa, Michigan, Minnesota, Montana, North Dakota^[8]
    • Health status rating limited (but no guaranteed issue) of individual health insurance:^[7]
      • Iowa — health status rating limited to 1.35:1 (135 percent)
      • New Hampshire — health status rating limited to 1.5:1 (150 percent)
      • Minnesota — health status rating limited to 1.67:1 (167 percent)
      • Nevada — health status rating limited to 1.75:1 (175 percent)
      • South Dakota — health status rating limited to 1.86:1 (186 percent)
      • Utah — health status rating limited to 1.86:1 (186 percent)
      • Louisiana — health status rating limited to 2:1 (200 percent)
      • Kentucky — health status rating limited to 2.08:1 (208 percent)
      • Idaho — health status rating limited to 3:1 (300 percent)

References

1. ^ Neuhaus, Walther (November 1995). "Community rating and equalisation". ASTIN Bulletin 25 (2): 95–118. doi:10.2143/AST.25.2.563242. http://www.casact.org/library/astin/vol25no2/95.pdf. 
2. ^ ^{a b} Organisation for Economic Co-operation and Development (November 25, 2004). Private health insurance in OECD countries. Paris: OECD. p. 78. ISBN 9264006680. 
3. ^ ^{a b} Leu, Robert E.; Rutten, Frans F. H.; Brouwer, Werner; Matter, Pius; Rütschi, Christian (January 16, 2009). "The Swiss and Dutch health insurance systems: universal coverage and regulated competitive insurance markets". Commonwealth Fund. http://www.commonwealthfund.org/~/media/Files/Publications/Fund%20Report/2009/Jan/The%20Swiss%20and%20Dutch%20Health%20Insurance%20Systems%20%20Universal%20Coverage%20and%20Regulated%20Competitive%20Insurance/Leu_swissdutchhltinssystems_1220%20pdf.pdf. 
4. ^ Thomson, Sarah; Mossialos, Elias (June 24, 2009). "Private health insurance in the European Union". European Commission. http://ec.europa.eu/employment_social/spsi/docs/social_protection/lse_ec_phi_final_report_web_en.pdf. 
5. ^ Government Accounting Office (September 30, 2003). "Private health insurance: Federal and state requirements affecting coverage offered by small businesses". Government Accounting Office. pp. 41–43. http://www.gao.gov/new.items/d031133.pdf. 
   Georgetown Health Policy Institute (February 2009). "Individual market rate restrictions (not applicable to HIPAA eligible individuals), December 2008". Kaiser Family Foundation. http://www.statehealthfacts.org/comparemaptable.jsp?ind=354&cat=7&sub=87&yr=63&typ=5. 
   Georgetown Health Policy Institute (February 2009). "Individual market guaranteed issue (not applicable to HIPAA eligible individuals), December 2008". Kaiser Family Foundation. http://www.statehealthfacts.org/comparemaptable.jsp?ind=353&cat=7&sub=87&yr=63&typ=5. 
   Georgetown Health Policy Institute (February 2009). "Small group health insurance market rate restrictions, January 2009". Kaiser Family Foundation. http://www.statehealthfacts.org/comparemaptable.jsp?ind=351&cat=7&sub=86&yr=92&typ=5. 
   Codispoti, Lisa; Courtot, Brigette; Swedish, Jen (September 2008). "Nowhere to turn: How the individual health insurance market fails women". National Women's Law Center. http://nwlc.org/reformmatters/NWLCReport-NowhereToTurn-WEB.pdf. 
   Lazar, Kay (April 26, 2009). "Prickly policies; Age-based pricing for health insurance has some consumers cutting back on coverage". The Boston Globe: p. 1 (Business). http://www.boston.com/business/healthcare/articles/2009/04/26/prickly_policies/?page=full. 
   Appleby, Julie (August 31, 2009). "Health insurance: How much more should older people pay?". Kaiser Health News. http://www.kaiserhealthnews.org/Stories/2009/August/31/age-rating.aspx. 
6. ^ Health Care Administration Division (October 28, 1999). "Regulation H-99-4. Community rating and approval of community rating formulas". Vermont Department of Banking, Insurance, Securities & Health Care Administration (BISHCA). http://www.bishca.state.vt.us/HcaDiv/RegsBulls/hcaregs/REG_H-99-4.PDF. 
7. ^ ^{a b c d} Courtot, Brigette; Codispoti, Lisa; Waxman, Judy; Swedish, Jen (November 2008). "The individual insurance market: a hostile environment for women". National Women's Law Center. http://www.nwlc.org/pdf/individual%20insurance.pdf. 
8. ^ ^{a b} Courtot, Brigette; Codispoti, Lisa; Waxman, Judy; Swedish, Jen (November 2008). "Women and employer-sponsored insurance". National Women's Law Center. http://www.nwlc.org/pdf/employer%20sponsored%20insurance.pdf.