About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

33 IRET Congressional Advisory 1 (1994)

handle is hein.taxfoundation/iretcgadv0032 and id is 1 raw text is: Avisoryv June 21, 1994 No. 33 COMMUNITY RATING: CURE WORSE THAN THE DISEASE Community rating is a requirement that insurers charge the same health insurance premium to everyone regardless of age, sex, location, occupation, or physical condition. It is a popular feature of the most intrusive health care reform packages. Community rating is one of those superficially attractive ideas that becomes very unattractive on deeper reflection. The recent community rating in New York should give pause to those who are advocating such a system for the nation as a whole. Community rating is designed to hold down premiums for those who have, or who are at high risk of developing, expensive medical c experiment with Commun111ity r-ating super.ficially attr-acl becomes very un deeper r-eflection. onditions. It does this by charging higher premiums than otherwise warranted to those members of the pool who are not at high risk. It prevents the relatively healthy from gathering themselves together (self- selection) or from being gathered together by insurance companies (cherry-picking), into low cost, low premium groups. The incidence of illness and medical outlays rise sharply with age. Community rating has the effect of overcharging the young, who have relatively low income, to subsidize people in their late forties, fifties, and early sixties, who are at their peak earning years. If given a choice, people would probably prefer to have premiums that rise with their incomes as they get older, rather than community rating. Community rating cannot work in a voluntary setting. The relatively healthy, including a large proportion of young people, would realize that the community rated premium far exceeds their expected medical costs, and that the insurance is a bad bargain for them. They would choose to go uninsured and walk away. They would spend their income on other products and services for which they get more value for their money. With few of the relatively healthy, low risk individuals remaining in the insurance pools, premiums would have to rise sharply to cover the higher average per capita outlays of the remaining relatively high risk, relatively unhealthy individuals covered by the policy. In fact, premiums would have to rise to the levels that would have been in force if people had been accurately rated according to risk to begin with. That is, premiums would quickly get s one of those back to levels that would have ive ideas that prevailed without community attractive on rating. The big difference is that many more people, those in the low risk groups, would now be uninsured. The very few in the low-risk group who happen to get very sick could very quickly get into financial trouble. That trouble would not occur if they and their low risk cohort had access to a fairly priced policy that they would all willingly have bought. Some proposed systems calling for community rating also require guaranteed issue without exclusion for pre-existing conditions. That is, any- one could demand to buy a policy at any time, covering existing conditions with no waiting period. Institute for Research on the Economics of Taxation IRET is a non-profit, tax exempt 501(c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote economic growth and efficient operation of the free market economy. 1730 K Street, N.W., Suite 910, Washington, D.C. 20006 Voice 202-463-1400 * Fax 202-463-6199 0 Internet www.iret.org

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most