Community Rates And Health Insurance Cost

by Holley Maher

Many small employers are very concerned about increasing healthcare premiums, and rightfully so. These large premium projections are partly due to a rating methodology called “community rating”.

Prior to the ACA, insurance companies determined small group rates after analyzing and applying a risk factor to employee ages, genders, and medical conditions. Shortly after the ACA passed, small group fully-insured insurance carriers faced new restrictions on how they could assess risk. Today, health, age, and gender have little to no bearing on the monthly premium cost.  

The Good: Historically, small employers have faced unpredictable premium swings because insurance companies divided customers into different “pools”. A small employer with higher claims may have seen a larger increase because they were moved into a high risk pool. With community rates, all the small businesses are in the same big pool; theoretically this will result in long-term rate stabilization.

The Variables: Community rates are age banded. This has pros and cons. If an employer currently has a 4-tier rating structure (i.e. single, employee + spouse, employee + child, and family), age bands can be an administrative hassle because each insured has a different age-based rate. Employees with children over the age of 21 may experience larger-than-average increases as well.  Younger employees may see decreased rates and older employees may see significant premium increases.

The Ugly: Employers with a predominant number of young, healthy, male employees experience the greatest potential increase in rates.

Ask your broker/consultant to provide you with predictive modeling to determine if/how community rates will impact future cost. Additionally, begin looking at solutions such as level funded plans, account-based health plans, and defined contribution platforms.

Holley Maher (hmaher@SmartBenefitsPlus.com) is a partner at Maher, Rosenheim, Comfort & Tabash LLC, specializing in group and individual insurance.