Community rating, the method typically used for small groups, means that premiums are:
Select an option to reveal the answer and the full 3-part explanation — free, no signup.
Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Under community rating, the insurer pools the experience of all insureds in a rating area and charges rates based on that pooled experience, so the healthy and the sick share the same underlying rate structure. The ACA requires individual and small-group plans to use a modified community rating that may vary premiums only by limited, specified factors such as age, tobacco use, family size, and geographic area, and never by health status or claims history. This contrasts with experience rating used for large groups, where a single group's own claims dominate its premium. Community rating therefore protects small groups with sicker members from unaffordable individual pricing.
Why the other options are wrong
- B) Rating each group on its own claims is experience rating, the method used for large groups. Small groups are priced through community rating precisely because their individual claims are not statistically credible.
- C) Community rating still permits limited variations such as age, tobacco use, and geography. It does not produce one identical premium for everyone in the nation.
- D) Industry classification does not set community-rated premiums. Rates are built from the pooled experience of the rating area, with only the allowed modifying factors applied.
Memory hook
Community rating = the whole neighborhood shares the claims tab; big groups go solo with experience rating.