Tag Archives: age rating

The old and the beautiful: How age and gender affect costs and premiums in commercial healthcare

We generally consider living a long life an important goal, and it certainly does beat the alternative. But one side effect of getting older is that, as we age, we typically acquire additional acute and chronic medical conditions, and the prevalence of many common chronic medical conditions increases significantly. Age/gender rating is an area in which actuarial considerations are often in direct tension with social or public policy considerations: there is a natural tension between the policy goals of making coverage more affordable for older people (with higher average costs) and the goal of encouraging younger people (with lower average costs) to purchase health insurance coverage.

In an article first published in the magazine The Actuary, Milliman consultants Doug Norris, Hans Leida, Erica Rode, and Travis (T.J.) Gray explore how age and gender affect costs and premiums in commercial healthcare.

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.

See the full article here.

Cost decreases for older people under reform?

Money Magazine has a new article out on the effects of reform. Here is an excerpt:

Once the law phases in, in 2014, insurers will no longer be able to turn anyone down because of a pre-existing condition; from pregnancy to heart disease, they’ll all be covered. That’s on top of earlier changes that will restrict or block annual and lifetime limits on what insurers, including in employer plans, will pay. The law also restricts the practice of “rescission”—finding a reason to revoke coverage after someone gets sick. Rates won’t be tied to your health, although smokers may have to pay up to 50% more. The oldest people in a plan will pay no more than three times the rate paid by the youngest. In short, policies you buy yourself will be a lot more like the group plans you get at work. “For people ages 50 to 64, rates will come down a bit,” says James O’Connor, a consulting actuary with Milliman.

To put this in context, consider the cost decrease for older people alongside the potential for cost increases among younger people. O’Connor weighed in on this in a recent AP article:

“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.

Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.

Will young men see upward pressure on their premiums?

A new article by the Associated Press looks at how the healthcare reform law may affect premiums among younger men. Here is an excerpt:

On average, people younger than 35 who are buying their own insurance on the individual market would pay $42 a month more, according to an analysis by Rand Health, a research division of the nonpartisan Rand Corp.

The analysis, conducted for The Associated Press, examined the effect of the law’s limits on age-based pricing, not other ways the legislation might affect premiums, said Elizabeth McGlynn of Rand Health.

Jim O’Connor, an actuary with the independent consulting firm Milliman Inc., came up with similar estimates of 10 to 30 percent increases for young males, averaging about 15 percent.

“Young males will be hit the hardest,” O’Connor says, because they have lower health care costs than young females and older people who go to doctors more often and use more medical services.

Predicting exactly how much any individual’s insurance premium would rise or fall is impossible, experts say, because so much is changing at once. But it is possible to isolate the effect of the law’s limits on age-based pricing.

This final caveat is important. In addition to an individual’s unique situation, any impact on premium will also depend on the particular insurance product in question and on the regulatory climate of a given state, not to mention various other factors.

Age rating in vogue

An article in yesterday’s Wall Street Journal about the role of “age rating” in healthcare reform is just the latest to examine what’s been described as an “arcane” issue by some in the press. The fact of the general media taking notice is quite a departure for a topic that has in the past largely generated discussion only in insurance and academic circles (and sometimes outside of healthcare).

But with healthcare reform shining light on so many different topics, age rating is a big story from coast to coast. We have blogged about age rating before and how it contributes to healthcare cost and complexity.

The Kaiser Family Foundation offers an online calculator that looks at how age rating and other reforms under various scenarios might affect premiums. The Robert Wood Johnson Foundation and Urban Institute have also collaborated on a study. And we have weighed in before on the topic of young invincibles.