Health plans worry the limitation on using age as a basis for setting premiums in the individual health insurance market come January 2014 could jeopardize its financial viability and lead to adverse risk selection the Patient Protection and Affordable Care Act is intended to alleviate.
The ACA requires individual health insurers to deemphasize age as a rating factor by reducing the current five or six age rating bands currently used to a maximum of three, meaning the oldest plan members would pay premium rates not exceeding triple those of the youngest. The goal under the ACA’s modified community-based rating scheme is to flatten out premiums to make them more affordable to middle aged people who over the past several years have seen them rise to a level rivaling the amount of a modest mortgage payment.
According to this Washington Post article, while older people would enjoy lower rates, younger people would consequently experience rate increases. Particularly those under age 30 that modified community-based rating envisions balancing out state risk pools by bringing in a typically healthier population with lower medical utilization.
The Post article contains contrasting analyses on the how this so-called “young invincible” demographic will respond to higher premiums. Consulting firm Oliver Wyman – which the article notes has been retained by the health plans’ dominant trade association – predicts the age rating limitation will result in 80 percent of those in their 20s paying more for tax subsidized coverage purchased through state health benefit exchanges than they now pay for even basic, low cost coverage. But economist Jonathan Gruber – who consulted in the drafting of the ACA – expects plans sold on the exchanges notwithstanding higher premium rates will appeal to this cohort when income tax credits to offset premiums are taken into account. More so than going bare and paying a penalty — and even more than low cost, high deductible catastrophic plans available only to those under age 30.
Which prognostication ends up being more on target won’t be known until plan issuers release premium information this summer and the exchanges gear up for open enrollment in the fall for coverage effective in January 2014.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email