Friday, July 10, 2015

Radar Visibility: Community Rating

In email from Anthem this morning:

"Community rating is one of the health care reform changes that applies to businesses classified as small groups. As of January 1, 2016 this means employers with 1 to 100 employees. With the ACA law, new small group health care plans have to be priced using community rating."

So what does that mean?

Well first, let's step back and define Community Rating (CR) [ed: an excellent primer may be found here]:

Basically, CR says that rates may only be determined based on the area in which you live, your age, and (generally) whether or not you use tobacco. This is how the individual market's been priced for a while now, and we've all seen how well that's worked out. Soon it will be applied to small group plans, exacerbating already skyrocketing premiums.

But Henry, this means that employers with lots of unhealthy employees won't have to pay more than healthier groups. Isn't that a good thing?

In a word: no.

And why not, you ask?

Suppose your auto insurance was based on CR. This means that your insurer could only base your rates on your age and where you live. That means you get to pay the same rate as your neighbor with 3 DUI's and two major accidents so far this year. What do you think's going to happen to everyone's rates under that system?

The same thing applies to health insurance (they're both indemnity-based products). So where's the incentive to encourage employees to live healthier lifestyles, since their rates are going to be the same as your competitor's across town (the one that has daily keg parties). It's also a major hit on male employees, who will end up subsidizing their female counterparts (since working-age women tend to have more and costlier claims). So one wonders how many groups are going to fold once they see the effects of this new regime.

Some states are generously offering another one of their highly successful (for some values of "success") "transitional relief" program to help ease the burden through most of 2017. Check out co-blogger Pat's Federalist post on how well that's working o
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