Summary: community rating (CR) forbids insurance companies from risk-rating their premiums. Say someone supports this because it supposedly helps make insurance more affordable and accessible to higher-risk consumers. You could counter this with empirical evidence that it’s not effective. But more effective is to expose CR as a stealth method to force the healthy to subsidize the unhealthy — something consumers may not accept if they were explicitly taxed for it. Ask the CR supporter why he’s not more straightforward about this, and whether or not consumers should have the choice whether to donate to such a charitable cause, given the many others they could support.
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Advocates of community rating want to forbid insurance companies from risk-rating their premiums. That is, they want it to be a crime for them to charge higher premiums for more risky clients. I’ve noted before that community rating mandates result in higher premiums, fewer people being insured in the non-group market, fewer insurers in the insurance market, and no evidence of decreasing the number of uninsured.
But say you still think community rating is a good idea. For example, you might argue that it’s unfair for some people to pay more for insurance because, through no fault of their own, they are at risk of a disease. But this is no argument for community rating. Under community rating, lower-risk individuals are forced to subsidize these higher risks through higher premiums. But if you’re OK with forcing one group of people to help another group buy insurance, you should be explicit about it. Don’t hide behind community rating, which obscures how voters are being forced to subsidize insurance for others.
Health economists Mark Pauly and Bradley Herring note that even if you do agree that the healthy should (by law) subsidize the unhealthy, this need not imply community rating:
Rather, a superior alternative is to permit insurers to risk-rate and then to make (ideally, lump-sum) transfers to those high-risks uninsureds deemed worthy of a subsidy. … The principle of letting the market achieve a competitive outcome and then redistributing to achieve equity is a well-known one in welfare economics, and the specific decisions on who is judged to be deserving of a subsidy are social decisions.
Yet, voters might not accept such explicit subsidy. After all, they might prefer to spend their income on their own insurance, other priorities, or to a non-government run charity.
