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[[File:Star of life2.svg|thumb|right|The [[Star of Life]], incorporating the [[rod of Asclepius]], a symbol of medical care]]
[[File:Star of life2.svg|thumb|right|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 if implemented in its pure form requires health insurance providers to offer health insurance policies within a given territory at the same price to all persons, regardless of their [[age]], [[sex]], or [[Health|health status]].
'''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 ==
== 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 claims occurring, and the value of any such a 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 partiular person wishing to effect 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. <ref>Neuhaus, W., [http://www.casact.org/library/astin/vol25no2/95.pdf|COMMUNITY RATING AND EQUALISATION], University of Copenhagen and MIRA Consultants Ltd. (Sydney);</ref>
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.<ref>{{cite journal |doi=10.2143/AST.25.2.563242 |author=Neuhaus, Walther |date=November 1995 |title=Community rating and equalisation |journal=[[International Actuarial Association|ASTIN Bulletin]] |volume=25 |issue=2 |pages=95–118 |url=http://www.casact.org/library/astin/vol25no2/95.pdf|doi-access=free }}</ref> Some form of [[risk equalization]] also often exists in a community rated system.

== Practical effect ==

In practical terms, Community Rating occurs most often occurs in regard to the determination of health insurance premiums, but is also be used in determining premiums for [[Flood insurance|flooding insurance]], and potentially any other type of insurance. In regard to health insurace it results in providers not evaluating health related factors such as a polential policy holder's state of health, but rather the state of health of everyone within the market. A health insurer will not evaluate the age, sex, or health status of a policy holder, but rather that of the market or population as a whole, and therefore will charge the same premium to all persons within that market or population for any one health insurance plan.

Where a health insurer charges the same premium for any one health insurance plan, regardless of sex, age, or health status, this is commonly referred to as a "''pure''" Community Rated system. Where an insurer may vary premiums within predefined limits on the basis of these factors, such is referred to as a "''modified''" Community Rating system.

Due to the restriction on commercial freedom of health insurance providers of using such a rating system, and the resulting uncompetitive and artificially high premiums for the young and healthy, Community Rating is usually mandated by government in systems in which it exists by force of law, with risk rated health insurance prohibited.


* Health insurers vary premium rates based on ''case characteristics'', such as:
A concept of "Open Enrollment" often accompanies Community Rating where it exists in order to ensure health insurnace providers extend coverage to all those who seek insurance and do not simple refuse to cover sick or "high risk" individuals. Some form of [[Risk equalisation]] also often exists in a Community Rated system.
** 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 City]])
** '''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


== Occurrence ==
== Occurrence ==


Community rating of ''supplemental'' private health insurance:
A system of pure or modified community rating is used by law in the determination of health insurance premiums in a number of jurisdictions, including:
* [[Australia]],<ref name="OECD">{{cite book |author=Organisation for Economic Co-operation and Development |author-link=Organisation for Economic Co-operation and Development |date=November 25, 2004 |title=Private health insurance in OECD countries |location=Paris |publisher=OECD |isbn=978-92-64-00668-3 |page=78}}</ref> [[Ireland]]<ref>{{cite web|publisher=Irish Department of Health|title=Introduction of Lifetime Community Rating (LCR) to the Private Health Insurance Market: FAQ and Examples|url=http://health.gov.ie/wp-content/uploads/2014/07/FAQ.pdf|accessdate=20 February 2016}}</ref> — lifetime community rating of private hospital insurance supplemental to universal publicly financed hospital insurance


Community rating of ''basic'' private health insurance:
*[[Australia]]<ref>Organisation for Economic Co-operation and Development, ''Private Health Insurance In Oecd Countries'', OECD Publishing, 2004;</ref>
* [[Netherlands]] — age and gender rating ''illegal'' = pure community rating; individual guaranteed issue
*[[Holland]]
** individual mandate with low-income government subsidies for 40% of households<ref name="Leu 2009">{{cite web |author1=Leu, Robert E. |author2=Rutten, Frans F. H. |author3=Brouwer, Werner |author4=Matter, Pius |author5=Rütschi, Christian |date=January 16, 2009 |title=The Swiss and Dutch health insurance systems: universal coverage and regulated competitive insurance markets |publisher=[[Commonwealth Fund]] |url=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 |access-date=September 29, 2009 |archive-url=https://web.archive.org/web/20090731040825/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 |archive-date=July 31, 2009 |url-status=dead }}</ref><ref name="Thomson 2009">{{cite web |author1=Thomson, Sarah |author2=Mossialos, Elias |date=June 24, 2009 |title=Private health insurance in the European Union |publisher=[[European Commission]] |url=http://ec.europa.eu/employment_social/spsi/docs/social_protection/lse_ec_phi_final_report_web_en.pdf}}</ref>
*[[Republic of Ireland|Ireland]]
* [[Switzerland]] — age and gender rating ''illegal'' = pure community rating; individual guaranteed issue
*within the [[United States of America|United States]]:<ref>United States General Accounting Office, ''Private health insurance federal and state requirements affecting coverage offered by small businesses.: Federal and State Requirements Affecting Coverage Offered by Small Businesses'', DIANE Publishing;</ref>
** individual mandate with low-income government subsidies for 40% of households<ref name="Leu 2009"/>
**[[Colorado]]
* [[United States of America|United States]]<ref>{{Cite news|url=http://www.acscan.org/pdf/healthcare/implementation/background/NewFederalRatingRules.pdf|title=Access to Health Care|work=American Cancer Society Cancer Action Network|access-date=2018-06-06|language=en}}</ref>
**[[Connecticut]]
** age rating limited to 3:1 (300 percent); gender rating illegal; individual guaranteed issue
**[[Maine]]
** individual and employer mandates with government subsidies for individuals with income up to 400% of the [[Federal Poverty Level]] - those with lower incomes pay lower costs.
**[[Maryland]]
** tobacco use can increase premiums up to 1.5:1, while geographic factors can also affect price.
**[[Massachusetts]]
**[[New Hampshire]]
**[[New York]] ''(pure Community Rating)''
**[[North Carolina]]
**[[Oregon]]
**[[Vermont]] ''(pure Community Rating)''
**[[Washington]]


== References & further reading ==
== References ==
{{reflist|2}}
{{Reflist|2}}
* [http://www.ncpa.org/enwiki/w/w37.html|Community Rating], National Center for Policy Analysis;
* [http://www.hia.ie/sec1_regulation/community_rating.htm|Regulation Community Rating], The Health Insurance Authority.


[[Category:Health economics]]
[[Category:Health insurance]]
[[Category:Types of insurance]]
[[Category:Health]]

Latest revision as of 14:46, 6 May 2021

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

[edit]

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 City)
    • 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

Occurrence

[edit]

Community rating of supplemental private health insurance:

  • Australia,[2] Ireland[3] — lifetime community rating of private hospital insurance supplemental to universal publicly financed hospital insurance

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[4][5]
  • Switzerland — age and gender rating illegal = pure community rating; individual guaranteed issue
    • individual mandate with low-income government subsidies for 40% of households[4]
  • United States[6]
    • age rating limited to 3:1 (300 percent); gender rating illegal; individual guaranteed issue
    • individual and employer mandates with government subsidies for individuals with income up to 400% of the Federal Poverty Level - those with lower incomes pay lower costs.
    • tobacco use can increase premiums up to 1.5:1, while geographic factors can also affect price.

References

[edit]
  1. ^ Neuhaus, Walther (November 1995). "Community rating and equalisation" (PDF). ASTIN Bulletin. 25 (2): 95–118. doi:10.2143/AST.25.2.563242.
  2. ^ Organisation for Economic Co-operation and Development (November 25, 2004). Private health insurance in OECD countries. Paris: OECD. p. 78. ISBN 978-92-64-00668-3.
  3. ^ "Introduction of Lifetime Community Rating (LCR) to the Private Health Insurance Market: FAQ and Examples" (PDF). Irish Department of Health. Retrieved 20 February 2016.
  4. ^ 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" (PDF). Commonwealth Fund. Archived from the original (PDF) on July 31, 2009. Retrieved September 29, 2009.
  5. ^ Thomson, Sarah; Mossialos, Elias (June 24, 2009). "Private health insurance in the European Union" (PDF). European Commission.
  6. ^ "Access to Health Care" (PDF). American Cancer Society Cancer Action Network. Retrieved 2018-06-06.
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