Some young people are likely to experience sticker shock when shopping for health insurance next year, as new regulations take hold to reduce price variation based on age.
A limit on pricing by age is among the many new federal regulations that will apply to health plans sold in the fall of 2013 for the 2014 calendar year — all part of federal health care reform.
Most states allow insurance companies to vary the price of health insurance based on a customer’s age. Older customers could pay up to seven times what young people pay.
In Connecticut, older customers have paid as much as six times what younger people pay, a result of market pricing and not statutory regulation, said Donna Tommelleo, spokeswoman for the Connecticut Insurance Department.
Starting next fall for 2014 plans, federal law will require that a health insurer cannot charge an older person more than three times the price of health insurance for a younger person. It’s known as the 3-to-1, or 3:1, rule.
The restrictions on age-related pricing were included in hundreds of pages of new regulations released Nov. 20 by the U.S. Department of Health and Human Services.
The new rules apply to health plans sold to individuals and small businesses. Most people have health insurance through an employer, and they won’t see a change. Additionally, employer-based group plans don’t have different premiums based on a worker’s age.
For people who don’t have health coverage at work, the limits on age-related pricing will mean higher prices for young customers to keep down prices for older customers, health insurers say. Some health insurers worry that young, healthy people will decide that health insurance is too expensive. Instead, they will decide to pay a federal penalty that starts in 2014 for anyone who doesn’t have health insurance.
Sign Up Or Pay The Penalty
An individual mandate requiring all Americans to have health insurance goes into effect in 2014. Someone who has no coverage will pay a penalty. Those penalties are $95 or 1 percent of family income, whichever is greater, in 2014; and $325 or 2 percent of family income, whichever is greater, in 2015.
The penalty rises in 2016 and beyond to the greater amount of $695 or 2.5 percent of a person’s taxable income, up to $2,085.
Low-wage customers do get some relief from the reforms, however. A young person may remain on his or her parents’ health insurance until turning 26. Federal reform also provides government subsidies to people, on a sliding scale, of up to 400 percent of the federal poverty level. The subsidy depends on the number of people in a person’s family, a person’s income level, and the price of the second lowest-cost “silver” health plan on the exchange.
In the exchange, health plans will have a precious-metal rating based on how much the insurer pays for medical expenses, including out-of-pocket costs, which is called the “actuarial value.” Bronze means the insurer pays 60 percent; silver is 70 percent; gold is 80 percent, and platinum is 90 percent.
Health insurers are poring over the new regulations now to prepare health plans they will sell next fall. The regulations spell out how insurers can price plans and the benefits they must provide.
“I think anybody who is paying attention is appropriately concerned about what rates are going to look like when you load in all of the requirements of the federal act,” said Keith Stover, a lobbyist and spokesman for the Connecticut Association of Health Plans, a trade group for health insurance companies.
“And I say that unburdened by the political argument,” Stover said. “I’m not saying that anything that’s being done is a bad thing. I just mean, when you are compressing age bands in the individual market, when you are requiring that richer plans be sold in terms of benefit and in terms of co-pay, co-insurance, et cetera, there is a cost to that.”
After initial review, the regulations don’t appear to have any surprises — just greater specificity on rules established when the law was passed in 2010, according to several health insurers and a trade group for health insurers.
“These regulations are largely in line with what we had expected when the law was passed, and Cigna is in a relatively strong position to continue to offer wide variety of competitive individual health plans to meet customer needs,” Cigna spokesman Joe Mondy said.
“One concern in the regulations is the 3:1 rule for community rating, which could have a negative impact on the rates paid by younger and healthier individuals, families and small groups,” Mondy said.
Subsidies might make plans more affordable, but they don’t change the fact that premiums are rising and medical costs are rising.
“Subsidies don’t lower premiums,” said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a trade organization and lobbying group. “They help people afford coverage, but they operate like Pell grants. Pell grants help people afford college, but the don’t actually lower the tuition. It’s the same way with subsidies.”
Mandates, in general, drive up premiums because better coverage comes at a price, health insurers say. However, some states had mandated coverage before federal reform. In those cases, the price of insurance might increase, but not because of newly mandated benefits in health plans.
Already, Connecticut has established a list of health benefits that each plan must have, based on benchmarks the federal government released in December 2011. Other states waited for the U.S. Department of Health and Human Services to release a more specific list Nov. 20.
“For Connecticut, since we had additional mandates well above and beyond what was required by the feds, we actually had a fairly easy process in that regard,” said Jason Madrak, spokesman for the Connecticut Health Insurance Exchange. For example, coverage for Lyme disease treatment is required in Connecticut but is not a part of the federally required benefits.
Other states delayed implementing health reform generally until the U.S. Supreme Court upheld the law in June, and to see if Obama would be elected. Now, they are scrambling to interpret the federal guidelines, set up a health exchange, and to prepare for the tide of new regulations that take effect in 2014. That makes for a challenging insurance marketplace.
The Connecticut Insurance Department posted a public notice on Nov. 1 to groups selling health plans for 2014, advising them of the new requirements. The department expects it will have a huge number of new plans to review.
Health insurers are trying to balance the new benefits with affordability.
Aetna says it is advocating for regulations that help ensure customers have access to affordable products that offer choice and don’t further complicate the process of buying health insurance. It also is focusing intently on potential rate shock and what could be done to mitigate rate shock, said company spokesman Matthew Wiggin.
Zirkelbach, the health insurance lobbyist, said: “Right now, particularly in the individual market, you have people who may decide to purchase a lower-premium, high-deductible policy that has catastrophic coverage. Now, you have a minimum bar, a minimum level that all policies have to meet. That’s why, when people ask, ‘What’s the impact going to be on premiums?’ The answer to that is: ‘It depends entirely on what coverage people have today.’”