At first glance, community rating in health insurance may seem like a good idea but while some argue the system makes health insurance premiums fairer, others argue the opposite. Before moving to a place where such a system is employed, it’s important to know a little bit about what the benefits and detriments to such a system really are.
Community rating of health insurance policies is a method of setting premiums that spread risk evenly across the entire community. In such a system, everyone pays the same rate, regardless of age, health status, or claims history.
In a system of pure community ratings, insurance companies are entirely prohibited from creating variations in insurance rates based on demographic characteristics, family history, or lifestyle factors. The insurer evaluates risk factors of the entire market population, and not those of any one person, when determining health insurance premiums. This often also incorporates an aspect of risk equalization. The way in which insurance companies project what the expected covered health costs will be for a particular group is known as “underwriting.” “Medical underwriting” includes assessment of the health or chronic illness of the group.
This is an extremely controversial process within the health policy community. Many wonder why a healthy twenty-five year old athlete should pay the same health insurance rates as a seventy year old with numerous chronic health problems. Community rating often drives premiums higher, and many believe that this could force lower-income individuals to be uninsured, when they cannot afford the higher premium. Numerous social concerns also come into play, such as adverse selection, and privacy issues.
On the other hand, advocates of community rating of health insurance policies argue that it offers an otherwise impossible opportunity for individuals with expensive health problems to obtain affordable coverage and receive the health care they need.
Most systems of community rating have been submitted to looser regulations, or eroded completely, but many do still exist throughout the world. While there are both benefits and detriments to such a system, community rating in health insurance tends to raise premiums.