The Effects of Age Rating Band Changes Under Health Care Reform

The Affordable Care Act (ACA) includes provisions that prohibit discrimination by health plans against people with pre-existing conditions and provide certain protections for consumers. Effective for plan years beginning on or after Jan. 1, 2014, ACA extends guaranteed issue protections for individuals and employers, prohibits the use of health and other factors to set premium rates, limits age rating and prohibits insurers from dividing up insurance pools.

On Feb. 22, 2013, the Department of Health and Human Services (HHS) released an advance copy of a final rule regarding ACA’s health insurance market reforms and existing rate review program. These reforms apply to health insurance issuers offering non-grandfathered coverage both inside and outside of ACA’s health insurance exchanges (Exchanges).

Fair Health Insurance Premiums

ACA and the final rule limit the factors that can vary premium rates in small group and individual markets for non-grandfathered plans. Specifically, health insurance issuers will only be allowed to vary premiums based on:

  • Age (within a 3:1 ratio for adults);
  • Tobacco use (within a 1.5:1 ratio, subject to wellness program requirements in the small group market);
  • Family size; and
  • Geography.

All other rating factors are prohibited. This means that several factors frequently used to set premiums, such as health status, claims history, duration of coverage, gender, occupation, small employer size and industry, can no longer be used.

These limitations represent minimum federal standards for fair health insurance premiums. States can choose to enact stronger consumer restrictions. In addition, starting in 2017, states have the option of allowing large employers to purchase coverage through the Exchanges. For states that choose this option, these rating rules would also apply to all large group health insurance coverage.

Naturally, older patients tend to utilize health care more than younger patients. Currently the 5:1 age rate band, which is effective in 42 states, spreads the premium costs over 5 ranges of age groups. An older individual will pay no more than five times what a younger individual pays in premium, as set by the limits. On January 1, 2014, those premium costs will change overnight for both groups, with the younger patients’ premiums going up as much as 50% and the older patients’ premiums dropping up to 10%. While this is great news for some, it will likely drive premium rates even higher overall. If the younger population experiences an increase in premium that is unaffordable, they may choose not to purchase coverage or possibly drop current coverage. As the young patients drop off and leave only older patients who utilize health care more frequently, premiums will increase for everyone.

Age rating band changes, combined with limitations on other rating factors such as gender, health status and loss of SIC code discounts will increase your group coverage costs in 2014. Additionally, there are several fees which will become effective in January: exchange fees, insurance assessment fees, health insurance industry fees and the Patient-Centered Outcomes Research Institute Fee. While insurance companies are responsible for some of these fees, much of the cost will likely be shifted employers and in turn, employees.

Some industry experts expect fully insured health plans to experience minimum increases of 30% on 2014 renewals. As HHS releases new information almost daily, MedCon Benefit Systems Group, Inc. is assisting clients in plan design strategy and preparation to meet compliance rules. If you are unsure where you stand in the world of health care reform, MedCon is here to help.

Sources: Department of Health and Human Services and Insurance Network America

*The information discussed on this page is not intended to be exhaustive nor should any discussion or opinion be construed as legal advice. Readers should contact legal counsel for legal advice.

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