Adjusted Community Rating
Historically, premiums were priced, among other factors, based upon a policyholder’s health status, but a Adjusted Community Rating is a pricing method that ignores health status, and determines premiums based upon other factors, such as age and geographic location.
The ACA requires the use of adjusted community rating, with maximum variations for:
- Age ratio of 3:1 – This means that older Americans cannot be charged more than 3x as much as younger Americans. This is change from the premium ratios resulting in seniors paying less and younger Americans to pay more.
- Tobacco 1.5:1. – Simply put, smokers can only be charged 1.5x more than non-smokers, regardless of the actual difference in claims incurred by insurance companies.
The major takeaway here is that pre-existing conditions are no longer used to set premiums.