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What is Community Rating?

What is Community Rating?

Posted Apr 08, 2017 by Jenifer Dorsey

How Eliminating This ACA Provision Affects The Affordable Care Act

As the GOP revisits its plan to repeal and replace the Affordable Care Act (i.e., ACA, Obamacare), Vice President Mike Pence has attempted to sweeten the deal for members of the House Freedom Caucus.[1] Pence this week offered to eliminate or change three Affordable Care Act regulations: essential health benefits, guaranteed issue coverage and community rating.[2]

Many are familiar with essential health benefits, which are services that must be included in all health plans considered minimum essential coverage, and the term guaranteed issue, which means an applicant cannot be denied coverage or charged more based on health history. However, community rating tends to be among the ACA’s lesser-known provisions.

Community rating is a rule that limits insurers from varying major medical premiums within a geographic area based on certain factors such as age, gender or health status.[3],[4] Under ACA Section 147.102, Fair Health Insurance Premiums, restricts variation in a plan’s premium rate as follows[5]:

  • Age – Limited to a 3:1 ratio for adults age 21 and older. This means that a 60 year old cannot be charged more than three times the premium rate of a 28 year old who purchases the exact same plan.
  • Tobacco use – The surcharge for tobacco use cannot be more than 50 percent.
  • Family size – Rates may vary based on whether a plan covers an individual or a family.
  • Geography – States established and submitted rating areas based on one of the following geographic divisions: counties, three-digit ZIP codes or metropolitan statistical areas (MSAs) and non-MSAs.
  • Gender – Rates may not vary based on gender.
  • For full details on these restrictions, view the final rule.

While age and gender restrictions are what get the most attention, The Fair Health Insurance Premium section of the legislation prohibits premium increases based on the medical history of the applicant or family members. If community rating were eliminated, those applying for individual health insurance plans would likely be required to respond to medical questions. Consequently, they could be charged more as a result—or denied coverage all together if the guaranteed issue provision is also revoked as proposed.

Prior to the ACA, small employer groups were considered guaranteed issue, so an insurance company could not deny coverage to the employees of a group based on health conditions, but they were not community rated in most states. This allowed carriers to charge groups that did not meet their underwriting criteria up to twice the rate of a healthy case, which prevented many employers from being able to afford to provide coverage. There is a concern among some that a similar situation could happen in the individual market where people with medical conditions will be priced out of the market.

How the proposed changes to the Community Rating provisions of the ACA play out with the concept of risk pools will be a key to determining what the impact would be of changes.


[1] Hellmann, Jessie. “Meadows: Freedom Caucus Would Back Bill That Got Rid of 3 ObamaCare Regs.” The Hill. April 6, 2017. http://thehill.com/policy/healthcare/327561-meadows-freedom-caucus-would-back-bill-that-got-rid-of-3-obamacare-regs

[2] Hellmann, Jessie. “Meadows: Freedom Caucus Would Back Bill That Got Rid of 3 ObamaCare Regs.” The Hill. April 6, 2017. http://thehill.com/policy/healthcare/327561-meadows-freedom-caucus-would-back-bill-that-got-rid-of-3-obamacare-regs

[3] HealthCare.gov. “Community Rating.” Accessed April 6, 2017. https://www.healthcare.gov/glossary/community-rating/

[4] Lo Sasso, Anthony T. “Community Rating and Guaranteed Issue in the Individual Health Insurance Market.” National Institute for Health Care Management. NIHCM Foundation. Expert Voices. January 2011. https://www.nihcm.org/pdf/EV-LoSassoFINAL.pdf

[5] U.S. Centers for Medicare & Medicaid Services. “Overview: Final Rule for Health Insurance Market Reforms.” CMS.gov. Feb. 27, 2013. https://www.cms.gov/CCIIO/Resources/Files/Downloads/market-rules-technical-summary-2-27-2013.pdf

This document is for general informational purposes only. While we have attempted to provide current and accurate information, this information is provided "as is" and we makes no representations or warranties regarding its accuracy or completeness. The information provided should not be construed as legal or tax advice or as a recommendation of any kind. External users should seek professional advice from their own attorneys and tax and benefit plan advisers with respect to their individual circumstances and needs.

About The IHC Group
Independence Holding Company (NYSE: IHC) is a holding company that is principally engaged in underwriting, administering and/or distributing group and individual specialty benefit products, including disability, supplemental health, pet, and group life insurance through its subsidiaries since 1980. The IHC Group owns three insurance companies (Standard Security Life Insurance Company of New York, Madison National Life Insurance Company, Inc. and Independence American Insurance Company), and IHC Specialty Benefits, Inc., a technology-driven insurance sales and marketing company that creates value for insurance producers, carriers and consumers (both individuals and small businesses) through a suite of proprietary tools and products (including ACA plans and small group medical stop-loss). All products are placed with highly rated carriers.

About IHC Specialty Benefits
IHC Specialty Benefits, Inc. (IHC SB) is a technology-driven, full-service marketing and distribution company that focuses on small employer and individual consumer products through general agents, telebrokerage, advisor centers, and private-label arrangements. IHC SB conducts business under the following brands: Healthedeals.com; Health eDeals Advisors; Aspira A Mas; and PetPlace.com. For more information about IHC SB visit http://www.ihcgroup.com/companies.