Originally Posted to Anthem Producer Online News | July 7, 2015 | By: Stephanie Dwilson
Community rating is one of the Affordable Care Act (ACA or health care reform law) 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. This means everyone pays the same rate within their geographic region, regardless of their individual health risks, occupation or illness history.
Before, community rating applied only to individual plans and businesses with 50 or fewer employees. But now, if you have clients in the range of businesses moving to the small group classification (1 to 100 employees), their premiums may be impacted, depending on the health status of employees, It’s important to know the advantages and disadvantages of community rating, so you can help guide your clients in their decisions.
How community rating works
According to the podcast Health Care Reform: Fact or Myth?, community rating premiums are not identical for everyone in an insurance pool, but the difference in rates is far smaller than it was before the ACA. In a community system, premiums are determined by several factors:
- Premiums are based on family size, age, location and, in some states, tobacco use.
- In regions where health care costs more, premiums may be higher.
- The highest rate in a health care plan can’t be more than three times the cost of the plan’s lowest rate.
- Rates are initially determined based on the entire pool’s health risk rather than individuals’ health risks.
Advantages of a community rating system
The new premium system has several advantages. First, a business won’t be disproportionately charged higher premiums because it made several health claims in past years. Businesses with older employees might still end up with higher premiums than those with younger ones.
The good news is that the difference won’t be as high as in the past. Instead of featuring maximum rates that could be as much as seven times higher than the lowest rates, the highest rates can now be only three times higher, as mentioned above. That means the total savings for businesses with older employees (or employees with chronic illnesses) may be significant under a community system.
On an interesting note, employers can charge their employees higher premiums if they don’t participate in wellness programs. The increase can be as high as 30 percent more. So this gives employees an incentive to proactively choose a healthy lifestyle, which benefits the employees and the company they work for.
Disadvantages of a community rating system
A major disadvantage is that premiums may end up being higher for businesses with predominantly young or healthier employees. In a sense, young members on a plan are subsidizing older, less healthy ones working for another employer. This means employers with healthier employees may not realize the same discounts with community rating that they had with risk rating.
Also, males may end up paying higher premiums than they would outside a community system. Why? Because females historically paid higher premiums to cover maternity costs. And the new rating system doesn’t allow premium differences based on gender. This means businesses with a high percentage of male employees may see their premiums increase.
The community system also allows rates to be higher in certain geographic locations where health costs are higher. That means businesses in these regions may end up paying more for health care than similar companies in a different region.
If you have clients facing higher premiums under a community system, there are options. Some states are offering transitional relief through October 2017. There’s also a self-funded approach, called a level or balanced funded health plan, to consider. To read more about these options and community rating in general, visit Anthem’s blog.
This article applies to:
- Wisconsin, Ohio, Missouri, Kentucky, and Indiana
- Small Group and Large Group
Questions? Contact Health@agent-link.net
