The High Cost of Charging Older People Much Higher Premiums
An estimated 11 million young adults ages 19 to 34 currently lack health insurance. Health insurers covet this age group as enrollees for their generally healthy status and lower cost risk. Bringing more of these uninsured young people into the Affordable Care Act (ACA) marketplaces would bring more balance to the marketplace risk pools, which some insurers complain are dominated by less healthy people.
One option for attracting young people being floated in policy circles is lowering premiums for this group by raising the limit on how much more insurers can charge older people relative to young people. The ACA bans insurers from charging people higher premiums on the basis of health or gender, but insurers are allowed to charge older adults up to three times what they charge young adults. This provision helps protect insurers from the greater potential health costs of older adults. Some have suggested that insurers be allowed to increase this so-called age band from 3:1 to 5:1 or higher, or allowing states to set their own age bands.
But recent research suggests such a policy change might result in only small coverage gains for young adults, while leading to significantly higher premiums and a loss of coverage for older adults. It also would cost the federal government significantly more.
Christine Eibner and Evan Saltzman of RAND found that loosening the age rating bands from 3:1 to 5:1 would decrease premiums for young adults by much less than it would increase premiums for older adults. For example, the researchers estimate that the change to 5:1 would increase annual premiums for the average benchmark silver plan for a 64-year-old from about $8,500 under current limits to $10,600, while lowering those for a 21-year-old from $2,800 to $2,100. This would come at a price tag of $9.3 billion in federal spending as a result of higher costs of tax credits for older adults.
This new federal expenditure would realize limited coverage gains. Older adults who were not eligible for tax credits would face the full amount of the increase, leading to an estimated 400,000 dropping coverage. While the change could bring as many as 4.4 million young adults into the marketplaces, 40 percent would come from employer plans, mostly from their parents’ policies. The estimated net gain in new coverage is thus only 1.8 million people.
Other research suggests that that current 3:1 age rating band tracks people’s spending over their lifetime relatively closely. Linda Blumberg and Matthew Buettgens of the Urban Institute find that, in contrast, moving to a 5:1 age band would “tend to undercharge young adults relative to their actual expenses and overcharge older adults relative to their actual expenses.”
If loosening the age rating bands shows so little promise, how else can we encourage more young adults to sign up for coverage? With a majority of uninsured adults citing affordability as a major reason for not getting coverage, greater outreach to young people would help. The vast majority of currently uninsured young adults have incomes that make them eligible for marketplace subsidies or Medicaid, according to a recent Commonwealth Fund brief. But enhanced subsidies and lower cost-sharing, such as lower copayments and deductibles, also may be required. And with more than one-third of uninsured young adults with qualifying incomes living in states that have not yet expanded Medicaid, the 19 states that have not yet expanded could accept the federal dollars available to them and expand their programs. As a recent federal report found, this might have the added benefit of lowering these states’ marketplace premiums.
Finally, more than two of five uninsured young adults are Latino, with some share of that group undocumented and thus not eligible for the marketplaces or Medicaid. Immigration reform would help make more young Latinos and others eligible for coverage, as would a loosening of the law’s restrictions on the eligibility of undocumented immigrants.