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What is community rating and how does it affect rates?October 21, 2014
The Affordable Care Act (ACA or health care reform law) required health insurance companies to offer coverage to all people and businesses. This is called guaranteed issue.
Along with guaranteed issue, the health care reform law also required health insurance companies to use modified community rating for individuals and small businesses. This is the practice of charging premiums that aren’t based on the health history of the individual or the employees of the business applying for coverage. Insurance companies must base rates on the cost of care for a group of people (a risk pool). By pooling a group of people together, healthy people help balance health care costs for people who aren’t healthy. The risk and costs are shared among everyone in the pool.
New laws for community rating
Health care reform law also introduced new rules for community rating, which is why it’s called modified community rating. Insurance companies can’t base rates on any person’s health history. Instead, rates can be based on age, tobacco use*, family size and location. The law limits how much coverage can cost. The highest rate can’t be more than three times the lowest rate for a plan.
How it works
All individual customers in a state are in one risk pool, and all small group customers are in another risk pool. In addition:
- States can keep individual and small business risk pools separate.
- Rates are based on the health risk of the entire pool. Then those rates can vary based on age, tobacco use*, family size and location.
These laws prevent insurance companies from creating separate risk pools that charge higher or lower rates.
The impact to health care plans
As our health care plans change to comply with ACA rules, this may cause the rates of some of our plans to go up. We’ll work with you and your clients to find a health care plan that meets their needs. We will offer 100% preventive care coverage, results-driven health and wellness programs for small businesses, and integrated cost and quality tools to help members understand their costs.
Stay up-to-date with health care reform
To stay up-to-date on all ACA-related topics, check out our health care reform website.
*Tobacco use may not affect the rates in some states.