Define 'community rating' and its effect.

• A. Premiums are set based on individual health status, leading to potential denial of coverage.
• B. Premiums are set by government mandates only.
• C. Premiums are set by market area rather than individual risk, which can lead to cross-subsidization and may require subsidies.
• D. Premiums are flat for all individuals regardless of risk.

Answer: (C)

Community rating sets premiums based on the overall risk of a defined community or market area rather than on an individual’s health status. The effect is that people within the same area pay similar premiums, so healthier individuals effectively subsidize those who are sicker. This cross-subsidization helps higher-risk individuals gain access to coverage and can lead to more stable, affordable premiums for the group, though it often requires subsidies to keep costs manageable. This contrasts with pricing tied to an individual’s health, which can deny coverage to higher-risk people, or with flat premiums that ignore differences in risk. Government mandates can influence how premiums are set, but they don’t define community rating by themselves, and a true community-rated system does not price purely by individual risk.