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Community rating

The Star of Life, incorporating the rod of Asclepius, a symbol of medical care 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 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






Source: Wikipedia | The above article is available under the GNU FDL. | Edit this article



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