The young are the restless

The Patient Protection and Affordable Care Act (PPACA) introduces new restrictions on insurers’ ability to use demographic variables to price policies in the individual and small group markets. Gender, age, and other community variables have long been used for premium price differentiation. However, beginning on January 1, 2014, rates may not differ based on gender, and must adhere to a maximum 3:1 ratio when comparing the premium for the most expensive adult age group and the least expensive adult age group.

These new regulations will increase the difference between healthcare costs and what insurers are allowed to charge in premiums, raising the potential for adverse selection as traditionally less expensive demographics, such as young males, seek other health insurance alternatives. Plans will also be allowed to vary rates by area, tobacco use, and family size, but those factors are unlikely to offset this effect. Although much of the recent focus on the implications of this change is on the age limitations, in reality much of the restriction’s impact is caused by moving to unisex rates.

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