The Patient Protection And Affordable Care Act (ObamaCare) requires all group health insurance plans with 100 lives or less to be part of the community ratings system.

Let me take a moment to explain how community rating works.  Let’s pretend that your automobile insurance is community rated.  Your next door neighbor and you share the same insurance carrier (i.e. All State).  However, your next door neighbor has a serious accident, totals his car and a month later is picked up for DUI.  Due to his irresponsible behavior, his new premium shoots up 57 percent.  Under community rating, you also get to share that increase as a result of his actions.

This is exactly how community rating will work for employers with group health insurance plans of 100 lives or less.  So, an employer with healthy employees who has a proactive wellness program in place will now be paying the same rates as an employer with a sicker workforce who does nothing to improve the overall health of his or her group.  And, if there are catastrophic claims, those claims will impact both companies’ health insurance premiums.

In the past, the rating differential was 11:1 or 8:1, meaning carriers could rate groups based on their health and claims experience.  ObamaCare throws that system out and lumps everybody into one category.  The result will be higher premiums for everyone and fewer plan options.  Additionally, if you happen to have a group larger than 100 lives, while you won’t be directly affected by community rating, you will be indirectly affected as the rising costs of small group health insurance impact the overall pool of employer-sponsored plans with specific carriers.

What’s the solution?  Moving to a captive, partially self-funded plan eliminates the community rating requirement and stabilizes premiums by making smaller employers part of a much larger group that functions more efficiently and acts as a shock absorber to catastrophic claims.

Cary Hall

America’s Healthcare Advocate