Guaranteed issue (GI) laws forbid health insurance companies from denying coverage to anyone who applies for health insurance, including those individuals who apply for insurance after the onset of a chronic health condition or who have made lifestyle choices known to be unhealthy. Adopted to help end “job lock,” GI has the unintended consequence of encouraging people to wait until they get sick before buying health insurance, which increases the number of uninsured and the premium costs for those who remain insured.
Pure community rating (CR) laws require health insurance companies to charge the same premium to everyone, regardless of age, sex, health history, lifestyle choices, and regional demographics. This one-size-fits-all rate results in charging young and healthy people higher premiums than their expected medical expenses would otherwise justify in order to subsidize rates for middle-aged, older, and less-healthy people. Under “modified” CR, premium variations are allowed to compensate for certain risk characteristics such as age, sex, and family size, but not for others such as health status or lifestyle choices.