An important change you may have noticed this year is that your group health plan has dozens of age-banded rates.
This new rating structure is a result of the Affordable Care Act, which bars insurers from charging individuals who are 64 or older more than three times the amount that they charge individuals who are 21 years old. As a result, most insurers will increase their rates by a fraction for each year above 21 or so, resulting in as many as 45 age-banded rates.
This is a big shift from prior years, which featured composite rates in the market. All insurers must now use these bands to rate their products in these two business lines.
Federal law requires that, for age-rating purposes, health insurers use a uniform age-rating curve established by the state for the individual market, small group market or both markets, specifying the relative distribution of rates across all age bands.
The rule also indicates that if a state does not establish or propose a uniform age curve, the federal standard default age curve will apply in both the individual and small group markets in that state for the 2014 plan or policy year.
Regulations created by the Centers for Medicare & Medicaid Services require insurers to utilize as many as 45 different rate bands, obviously adding to the confusion of your employees come policy renewal. We’ve tried to cut through the haze with the following.
This is how it works
- Ages 0-20 are one rate band.
- There are 43 individual bands for ages 21 through 63.
- There is one rate band for individuals 64 and over.
- The age of 21 is basically the base rate. Under the federal rate-band schedule, which is applicable in most states, the rates for the 0-20 band are 63.5% of the rate that 21-year-olds are charged.
- After 21, the percentage multiplier increases gradually for each year, until 64.
- The maximum that can be charged to individuals who are 64 and older is 300% of the rate charged to 21-year-olds.
- Insurers can charge the 0-20 rate for up to three children of the policyholder. There is no charge for additional children aged 0-20. Because children can be covered up to age 26, once a child reaches 21, they will have a rate for their specific age through 26.
The age represented by each member will be their age at their enrollment date. That age rate will remain until the contract renews. The ages will then be adjusted to the current ages of members at contract renewal.
Net costs for older adults are considerably higher than for the younger adults, not only because of age rating and its consequent higher premiums, but also because older adults use significantly more medical care services, meaning their out-of-pocket spending is considerably higher, as well.
According to the Robert Woods Johnson Foundation, the average spending under the new rating bands by single 21- to 27-year-olds with incomes above 400% of the federal poverty level is $5,820, while it is $15,620 for singles aged 57 and older of the same income.
Also, average direct costs for older families under 3:1 rating are $28,410, compared with $12,900 for younger families.