The Affordable Care Act (ACA) established a 3-to-1 limit on age rating of health insurance premiums, meaning that older adults who purchase coverage on their own cannot be charged more than three times the amount a younger person is charged for the same health plan. This important provision protects consumers by limiting the amount health insurance companies can charge people based on their age. Recently, some have called for weakening or eliminating the ACA’s limit on age rating, which would mean a significant loss of an important consumer protection.
ACA’s limit on age rating is a critical consumer protection
Prior to the ACA, most states did not have laws in place to protect consumers from being charged higher premiums based solely on age. Consequently, insurance companies routinely charged older people in the individual health insurance market much higher amounts than younger people for the same coverage. And over time, their premiums became an increasing financial burden. Meanwhile, differing state policies meant that consumers’ access to affordable coverage could vary greatly depending on whether they lived in a state that had enacted strong protections against age rating.
Allowing insurers to charge older adults higher amounts stands in stark contrast to the way premiums are set for most people who receive health coverage through a large employer. In that instance, people typically pay the same amount regardless of age. Thus, the ACA’s limit on age-related premiums is one of the law’s most important protections to ensure consumers are charged a fair premium. Together with other protections, such as the ACA’s ban on insurance companies charging higher premiums or denying coverage based on a person’s preexisting health condition, these provisions ensure that people of all ages can access affordable coverage and get the care they need.
With weaker limits, older adults would face significantly higher premiums
Some have called for weakening the ACA’s age rating protections and allowing insurers to vary premiums by a ratio of 5 to 1 — instead of the current 3-to-1 limit — or eliminating this consumer protection altogether. They argue that this would lower costs for younger age groups. However, such a change would create a significant financial burden for older adults, who already pay up to three times more in premiums than younger groups for the same coverage.
Studies, in fact, have found that such a weakening of the law would increase costs significantly for older adults, but would only marginally lower costs for younger people. For example, a study by RAND and the Commonwealth Fund estimates that switching to a 5-to-1 limit would increase yearly costs for an average 64-year-old by $2,100 (from $8,500 to $10,600), while reducing premiums for a 21-year-old by only $700 (from $2,800 to $2,100).
Weaker limits will result in loss of health coverage for older Americans and higher federal spending
The same study estimated that changing the ratio to 5 to 1 would also raise costs so much that an estimated 400,000 older adults would no longer be able to afford to purchase a health plan and would lose their coverage. What’s more, federal spending would increase by $9.3 billion primarily because so many more older adults would become eligible for greater federal financial assistance.
Of course, more than the issue of cost is the basic matter of access to needed health care services. The ACA’s limit on age rating of health insurance premiums is critical to ensuring that millions of older adults can afford health coverage so they receive care when they need it. The ACA’s age rating protection should be maintained and strengthened — not weakened or eliminated.
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Jane Sung is a senior strategic policy adviser with AARP’s Public Policy Institute (PPI), where she focuses on health insurance coverage among adults age 50 and older, private health insurance market reforms, retiree coverage, Medicare supplemental insurance and Medicare Advantage.