Q&A: Health Insurance/ Employee Benefits - What’s the Difference Between Health Insurance Risk Rating and Community Rating?
A: The increasing cost of insurance is a challenge for all businesses, including municipalities. When health insurance companies look at insuring an organization, its employees as a group carry a level of risk. There are several variables that impact the insurance premiums in Kentucky, such as health care costs in the region, age, family size and utilization, tobacco use, medical history and even geographic area. When a company sets premium rates for the group, these factors come into play. If a group is “risk-rated,” its premium costs are based on the medical history of the group.
A group can only be risk-rated in today’s market by participating in a Health Care Association, being a large group or by moving into self-funding. Working within an association allows all groups, big or small, to obtain risk-rating advantages like their large group neighbors. “Community-rated” means the insuring company combines many groups together and bases rates on the aggregate. There are eight regions within Kentucky, and each region has its own rates based on the profile of that region. These rates cannot use medical history to rate groups up or down in premium. The Kentucky League of Cities Health Insurance and Employee Benefits program is an Association Health Plan.
KLC currently offers risk-rated and community-rated plans to see where each municipality fits the best. The bottom line, KLC has several options to determine what is best and most cost effective for its members. With questions about risk or community ratings, contact Jeremy Baird, Director of Agency Operations at 800.876.4552.