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Why the ACA's Limits on Age-Rating Will Not Cause "Rate Shock"
Distributional Implications of Limited Age Bands in Nongroup Health Insurance
A new addition to the Urban Institute's Quick Strike series explores the impact of a much-discussed Affordable Care Act (ACA) provision that aims to limit variation in the amount of health care premiums charged to older adults compared to younger ones.
The ACA’s ‘age rating bands’ would prevent insurers from selling nongroup coverage to an adult age 64 or older for more than three times the premium they charge to a 21 year-old for the same coverage—allowing for a 3:1 premium ratio based on age. Some people believe these bands should be loosened to a 5:1 ratio, which is frequently used today, because they say 3:1 will require insurers to increase premiums on young adults, which may lead them to opt out of coverage. Today’s report, however, says that purported negative effects of a 3:1 age rating band are largely overstated. The authors found that a 5:1 model actually undercharges the young adults expected to enroll under the ACA relative to their actual health care expenses, and overcharges their older counterparts.
The report’s authors found that the increased premium costs that older adults shoulder in the 5:1 model are roughly double the projected savings for younger Americans. In addition, 96 percent of young adults ages 21-27 enrolling in single plans have incomes below 300 percent of the federal poverty level, making them eligible for tax credits offered through the ACA’s state health insurance exchanges or Medicaid.