What Is an Experience Rating in Health Insurance?

Health insurance providers use a rating system to calculate the prices they'll charge for their insurance. Ratings systems such as "experience rating," "community rating" and "adjusted community rating" use different statistical sets to estimate how much a given individual or group will pay for health care, and therefore how much the health insurance provider is likely to have to pay out. These factors determine how much a given group or individual will pay for their insurance.


Experience Rating

An experience rating system is used to estimate how much a specific individual or group will have to spend on medical care. This rating is based on how much the person has already spent, what conditions are already present and what risks a person has. Experience rating tailors policies to the specific group or individual.

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Community Rating

Community rating is a rating system used by health insurance providers that establishes premiums based on the medical statistics of a community, rather than those of the individual or specific group. It bases premiums on the average medical spending of a community of people, whether that community is geographical or industrial. This means that factors such as age, gender and specific claims experience aren't considered. This system spreads the cost of health care equally over a community, with all those who are insured under the same policy or type of policy paying the same prices. This means that those who are healthy may pay more than they would on an experience-rated system, but also that those who are less healthy may pay less.


Adjusted Community Rating

Adjusted community rating is a ratings system that calculates a community's medical statistics, but then adjusts these figures based on factors such as age, gender or family composition. It does not take the medical history of the specific group or individual into account, but it does take into account the medical care that is statistically probable among a given group. The health insurance provider then adjusts the community-based premium to reflect an individual's or group's demographic makeup.



While experience rating provides savings for those who are healthier and increases company profits, it can raise the expenses of those who are ill or less healthy. Experience-rated premiums can become too high for the sick to pay. It also allows insurance providers to choose to insure only those who are healthy and not those who are more likely to have larger medical spending.

Community rating spreads the cost out, allowing those who are less healthy to afford medical care, but it can create higher costs for those who are healthy. Adjusted community rating also spreads the cost of health insurance out but allows for higher or lower premiums based on the demographic makeup of the specific individual or group covered by the policy.