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CCH® BENEFITS — 10/23/09

Health Insurance Reform Rating Ratio Will Affect Affordability For Older Adults

From Spencer's Benefits Reports: Americans ages 55 through 64 would pay 50% more for individual health insurance from an exchange under the Senate Finance Committee’s America’s Healthy Future Act than under the House health care reform proposal, according to a study from the Urban Institute and the Robert Wood Johnson Foundation.

The report compared the cost to different age groups for buying the same health insurance through proposed insurance exchanges using different age-rating rules proposed under the major bills in Congress and through community rating (all insureds with the same coverage would pay the same premium amount). At the time the Urban Institute was preparing the study, the Senate Finance Committee’s proposal included a 5:1 age rating provision (five times the rate for the youngest adults), but has since lowered the ratio to 4:1, still twice as high as the House bill age-rating provisions.

Using the 5:1 age-rating ratio, families with two people ages 45 to 64 could be charged an average of $12,500 under the Senate Finance bill, compared with $9,662 under other versions of the bill, according to the report. At the same time, younger people would pay less: single adults ages 18 to 24 would pay $2,163 per year on average under the Senate Finance bill, compared with $2,965 under the other major legislation.

However, because of the issue of affordability, not only of health insurance premiums but also other out-of-pocket costs for older people, the 5:1 rating ratio would end up costing the government and employers more than community rating—$349 billion for the government and $432 billion for employers, versus $345 billion and $420 billion, respectively. The 2:1 rating would cost employers $428 billion.

For employers, the higher cost associated with the higher rating ratio for older workers would be due to unaffordable premiums in the insurance exchange that would spur older workers to continue employment to be able to maintain their employer-sponsored health insurance. Affordability concerns would be substantially higher for older adults.

In contrast, regardless of the rating option used, more than 90% of those ages 18 to 24 and 80% of adults ages 25 to 34 getting coverage through the exchange would be eligible for an income-related subsidy because they typically have low incomes.

“The authors find that there is little difference in overall health insurance coverage or aggregate spending under reform, regardless of the premium rating option chosen,” the report continued. “Premium and out-of-pocket subsidies provided by the federal government under H.R. 3200 would go a significant distance in making access to medical care affordable for those individuals and families in the subsidized income range of 133% to 400% of the federal poverty level.

“However, practical affordability of total health care costs (premiums and out-of-pocket expenses) will be strongly related to premium rating rules for those individuals and families with incomes too high to qualify for federal subsidies, particularly those with incomes between 400% and 500% of the federal poverty level. For many older adults and older families, the higher out-of-pocket costs that come with greater medical use in older age, combined with high premiums due to steep age rating (such as 5:1 bands), would lead to a high burden of total health care costs relative to income. The majority of adults age 55 to 64 purchasing nongroup coverage through the exchange would face a burden of more than 20% of income for a single policy.”

For more information, visit http://www.urbaninstitute.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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