July 19, 2018
The stethoscope

Health Law Change Could Cost People Over 50

by Nancy Metcalf  

The debate over the fate of the Affordable Care Act has moved to the halls of Congress, and one of the first pieces of repair legislation put forth would increase health insurance premiums for some older adults by several thousand dollars a year. Here's why.

Before the ACA, older adults buying insurance in the individual market were routinely charged premiums that were five or more times higher than what younger customers paid—even if they had no pre-existing conditions. In insurance parlance, this ratio is called “age banding.”

The ACA made insurance somewhat less costly for older adults by telling insurance customers that they could only have an age band of 3-to-1, meaning they couldn’t charge their oldest customers more than three times what the youngest ones pay. Here’s how it works in practice: A 21-year-old buying the cheapest Silver plan for sale in Springfield, Ill., this year pays $353.16 a month for it (without premium subsidies, that is). A 64-year-old pays $1,059.48.

Both pro- and anti-ACA lawmakers agree that this has discouraged some healthy young adults from buying insurance on the state exchanges; their enrollment is running about 25 percent less than expected. That has made health insurance overall more expensive, because companies had to raise premiums to cover the higher medical expenses of their older pool of customers.

The proposal just introduced in Congress would put the age band back to 5-to-1, or even more if states so choose. Lower premiums would entice younger people back into the insurance market, which would “contribute to market stability by infusing the risk pool with more low-risk individuals,” said economist Douglas Holtz-Eakin of the American Action Forum, a Washington think tank, testifying in favor of the idea.

But AARP has come out strongly against the proposal. It points to a recent study estimating the change would cut premiums for the average 21-year-old by only $700 a year while raising them for a 64-year-old by $2,100 a year. Some older adults who make too much to get tax subsidies for their insurance premiums would likely be forced to drop their insurance.

The ones who do get premium subsidies would end up costing the government more money, because the subsidy formula caps individual expenses at a certain percent of income—so the higher the premium, the bigger the subsidy.

The bottom line: 400,000 fewer older adults with health insurance, and $9 billion more in federal spending on premium subsidies.

Does any of this apply if you get health insurance through your job? No. It’s illegal for employers to demand bigger contributions to their health plans based on age or gender. That rule was in place long before the ACA was passed and hasn’t changed.

This article was adapted from HealthAfter50, where it appeared as part of a series of articles on the impact of the health-care proposals being introduced in Congress this year. You can weigh in by contacting your representative in the U.S. House or the Senate.

Also see What Happens to Medicare if the ACA is Repealed?