Why the ACA's Limits on Age-Rating Will Not Cause "Rate Shock"

As the 2014 start date for the Affordable Care Act's (ACA) full implementation approaches, insurers are calling attention to a potential “rate shock” — or substantial increase in health insurance premiums — that will push young adults out of the nongroup insurance market, leaving them uninsured and raising premiums for older adults..

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.

However, an examination of these two age rating bands finds that the negative effects of a 3:1 band is largely overstated, and a 5:1 model would undercharge young adults and overcharge their older counterparts. The 3:1 age gradient is a reasonable proxy for the health expenses of those expected to enroll in the new nongroup marketplace.

This Quick Strike Series brief, published online in March 2013 by the Urban Institute with the support of RWJF, examines the impacts of loosening the band rates from 3:1 to 5:1.