Pure Community Rating

Pure community rating requires insurers to set the same premiums for everyone in a community. Plans cannot vary premiums at all based on health status, claims history, or age, but they may be allowed to vary premiums within a state based on geographical location and/or family composition.

Two states, New York and Vermont, use pure community rating in both the individual and small group markets. In addition, the following states use pure community rating in the individual market for certain health plans only: New Jersey (for “standard” plans—see the example under Establishing a Medical Loss Ratio) and Pennsylvania (for some Blue Cross plans and HMOs only).¹

Community rating and adjusted community rating are particularly helpful in limiting variation in premiums for the smallest employers. New Hampshire, which has experimented both with rate bands and with adjusted community rating, provides an illustration of this. In 2003, the state dropped its adjusted community rating system and decided to use rate bands instead. The Center on Budget and Policy Priorities describes the problems this caused:

Under the law that New Hampshire enacted in 2003, health insurers in the state were permitted (beginning in 2004) to vary small business health insurance premiums substantially, based on the health and age of workers, firm size, geographic location, the firm’s industry, and other factors.3 Some firms in New Hampshire with disproportionately younger or healthier workers saw their premiums decrease or remain flat. Many other small firms, however, particularly the smallest firms with less healthy workers and those that were located in high cost areas of the state, had their premiums skyrocket when they renewed their health insurance plans. Due to the large premium increases faced by these small businesses, New Hampshire repealed the 2003 law in 2005 and essentially returned to its prior community rating system.²

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