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It’s All About Community Rating

It’s All About Community Rating January 25, 2010

The more I think about it, the more I realize that the leading contentious issue in the healthcare debate  is community rating. This has become even clearer reading the blog of leading healthcare expert, Uwe Reinhart. Community rating basically means you charge all people in the risk pool the same amount, and not base payment on age or health status. Here is how Reinhart defines the issue:

““Community rating” refers to the practice of charging a common premium to all members of a heterogeneous risk pool who may have widely varied health spending for the year. It inevitably makes chronically healthy individuals subsidize with their insurance premiums (rather than through overt taxes and transfers) the health care used by chronically sicker individuals.”

And there is the problem. Reinhart, a particular expert on international comparisons of healthcare systems, notes that community rating is completely uncontroversial all over the world, except in the United States. It underpins the systems of Germany, Switzerland, and the Netherlands, which basically rely on private insurance. And here is how Reinhart explains it:

“The vast majority of citizens in these countries view health care as a “social good” that is to be shared on the basis of need by all on roughly equal terms and is to be financed largely on the basis of ability to pay. By contrast, Americans have never agreed on a shared social ethic that should govern their health system, as the current debate over health reform has made visibly and audibly clear.

Furthermore, younger and healthier people in these countries realize that, but for the grace of God, they might become chronically ill only a few years hence and that, in any event, one day they, too, will be older and sicker. By paying more than their actuarially expected cost for health insurance, young and healthy people in these countries join a club, so to speak, that offers them a valuable call option. That call option allows them to procure at age 55 health insurance at a premium much below their actuarially expected cost.

By contrast, Americans have been taught that health insurance is largely a private consumption item purchased year to year and customized to the individual’s circumstances.”

Community rating is a reflection of solidarity, a pillar of Catholic social teaching. And so it flies in the face of the individualism inherent in American Calvinist culture. And this is at the heart of the current reform proposals – an attempt to nudge the dysfunctional US system toward something that resembles Germany, Switzerland, or the Netherlands – community rating, the individual mandate, plus subsidies for those below a certain income threshold. Community rating guarantees solidarity, and the individual mandate makes it viable. Without this, millions will be left behind and at the mercy of powerful insurance companies, which is a violation not only of solidarity but subsidiarity.

But this is what people do not like. This is what they consider “socialized” medicine or a “government take-over” of health care. They don’t want an individual mandate impinging their “freedom”. This is it, there’s nothing else. And when you look at Republican proposals, you will see them all moving in the other direction – toward health insurance based on individual risk, which of course is a great deal for the young and healthy, the rest be damned. That’s what the reliance on individual tax credits, raised again just yesterday by John McCain, is all about.

This “individual” solution is unacceptable. It is a gross violation of solidarity. It will do nothing to prevent millions being left behind, with no insurance or rationed by cost. It will do nothing to prevent millions going bankrupt from healthcare costs.

Ironically, as Uwe Reinhart notes, the American system means the government often has to pick up the pieces:

“Curiously, however, although Americans often flatter themselves with the image of being self-reliant, rugged individualists, they actually tend to rely more than citizens in many other countries on government-run health insurance and pensions in their old age, or when they fall on hard times. It is what makes the creature called “American” so perplexing in the eyes of foreigners.”

This is why I really believe this reform is the last and best chance for the survival of private insurance, if only its opponents were not so myopic, so blinded by individualist ideology.


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