ObamaCare’s community‐rating regulations generally bar insurance companies from using any factor other than age to determine premiums, and prevent insurers from charging 64‐year‐olds more than three times what they charge 18‐year‐olds. I have long maintained community rating is nothing more than a system of government price controls, and should meet with the usual scorn economists universally heap on such boneheaded policies.
An esteemed colleague challenges my claim that ObamaCare’s community‐rating is a system of price controls, because “the government doesn’t set a price.” Here is how I responded:
Price controls don’t always take the form of a fixed integer. Sometimes government sets prices using ratios.
Premium caps control prices by limiting this year’s premium to a ratio of last year’s premium. Medicaid’s prescription‐drug price controls set prices as a ratio of the average wholesale price. Medicare’s price controls involve all sorts of complex ratios.
ObamaCare’s community‐rating regulations control prices by (a) setting the ratio of premiums for healthy vs. sick people within each age category to 1:1, and (b) setting the ratio of premiums for young vs. old to 1:3. Insurers would not voluntarily follow those ratios, with good reason. But community rating forces insurers to set prices according to those ratios. Thus it is a price‐control scheme.
