How Do States Choose between Using Rate Bands and Community Rating? 

States must balance several policy goals and questions of fairness in determining how to price health insurance: 

• How much should an employer’s health insurance costs change when the employer hires older workers or a worker with a chronic health condition? Rate bands proscribe an amount by which premiums can vary based on these factors. Pure community rating does not allow premiums to vary at all based on these factors.
  
• Should the community as a whole pay equally for health care, or should those who are in poor health who are likely to use more services pay more? Pure community rating distributes health care costs equally among those in a given insurance plan.
  
• Is the goal of health insurance to get the greatest number of people covered? If so, people who are young and relatively healthy may be more likely to purchase insurance if it is priced lower for them than for people who are older and sicker. They will not want to pay premiums that exceed their expected average health costs. Rate bands allow premiums to be based on both age and health, while adjusted community rating allows premiums to vary based on age but not health.

On the other hand, many consumer advocates believe that the goal of health insurance is to make insurance readily available to people who most need health care. Under that contention, pricing insurance at one rate for the whole community (community rating) makes insurance more affordable to people who need health care and avoids price discrimination (and perhaps employment discrimination) based on factors that individuals cannot control.

Adding premium subsidies under either rate structure can also help to make insurance affordable.