National Association of Insurance and Financial Advisors

Age Band Rating (ACA)

Seniors often experience higher costs for care and treatments. As a result, the age band rating establishes a range for which insurers can assess higher premiums from older consumers over younger, healthier ones to cover increased costs. Currently, 42 states allow an age band rating of a 5:1 ratio. This means that insurers cannot charge seniors more than five times what younger patients pay in premium value. One provision in thePatient Protection and Affordable Care Act (ACA) compresses the permitted age band rating to a 3:1 ratio.

While the goal of this provision is to attempt to spread health care costs more equitably over the age spectrum, it has unintended consequences. A recent study conducted by Oliver Wyman for Contingencies magazine concluded that premiums could increase by as much as 42 percent for individuals between 21-29 years of age due to age band constriction. This significant hike could lead to an additional danger. Coupled with ineffective purchasing mechanisms and guaranteed coverage despite preexisting conditions, many younger individuals may choose to forgo coverage until they fall ill. This would greatly disrupt the risk pool balance, resulting in even higher premiums for seniors and those already sick remaining in the pool.

Policymakers should prevent these significant rate increases and potential disruption of the risk pool by restoring to insurers the greater flexibility of a 5:1 age band or by slowly phasing in the 3:1 ratio.