True or false Under community (risk) rating, members of a community are charged the same premium regardless of health risk
The correct answer and explanation is:
Correct Answer: True
Explanation (Approx. 300 words):
Community rating is a health insurance pricing strategy in which all members of a defined community pay the same premium for coverage, regardless of their individual health risks. This concept is based on the principle of risk sharing and is often used in public or regulated insurance systems to promote equity and access to healthcare.
There are two types of community rating:
- Pure community rating – All individuals pay the same premium, and the insurer cannot adjust rates based on age, gender, health status, or lifestyle factors like smoking.
- Adjusted (or modified) community rating – Premiums can vary based on limited factors such as age or geographic area, but not based on health status or claims history.
The aim of community rating is to spread the financial risk of healthcare costs across a larger, more diverse group. This helps make insurance more affordable for people who are older or have pre-existing conditions, who might otherwise be charged extremely high premiums or denied coverage in a risk-rated system.
In contrast, under experience rating or risk rating, premiums are set based on the individual’s or group’s past medical history and expected future health costs. This system can result in lower premiums for healthy individuals but significantly higher premiums for those with health issues, which may lead to underinsurance or lack of access to care for vulnerable populations.
Policy implications of community rating include greater inclusiveness and fairness, but it may also lead to adverse selection, where healthier individuals opt out of coverage, leaving a risk pool that is sicker and more expensive to insure. To counter this, many systems using community rating also enforce mandates or offer subsidies to maintain balanced risk pools.
In conclusion, under community (risk) rating, everyone pays the same premium regardless of their health risk, making the statement true.