Community rating: Difference between revisions
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== Practical effect == |
== Practical effect == |
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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 |
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. |
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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. |
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. |
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Revision as of 21:57, 12 July 2009
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 status.
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. [1]
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 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.
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.
Occurrence
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[2]
- Holland
- Ireland
- within the United States:[3]
- Colorado
- Connecticut
- Maine
- Maryland
- Massachusetts
- New Hampshire
- New York (pure Community Rating)
- North Carolina
- Oregon
- Vermont (pure Community Rating)
- Washington
References & further reading
- ^ Neuhaus, W., RATING AND EQUALISATION, University of Copenhagen and MIRA Consultants Ltd. (Sydney);
- ^ Organisation for Economic Co-operation and Development, Private Health Insurance In Oecd Countries, OECD Publishing, 2004;
- ^ 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;
- Rating, National Center for Policy Analysis;
- Community Rating, The Health Insurance Authority.