Don’t Get Fooled: The Age Tax Is a Real Thing

Seeking to justify large increases in premiums for older adults under the proposed American Health Care Act (AHCA), the Republican staff of the Joint Economic Committee released a short paper last month entitled “The Myth of the Senior Tax.” But the paper fails to grasp the severe consequences of weakening the current law that prevents insurers from charging older consumers more than three times what younger people pay.

The AHCA would raise that limit: Premiums for older people could jump to five times the amount insurers charge younger consumers, from the limit of three times the younger consumers’ rate under the current law, the Affordable Care Act (ACA). Such a change would significantly increase financial burdens on millions of older adults, but the shift in costs would do little to get more young consumers to enroll. Key points to consider include:

Significantly increasing premiums for older adults would only marginally lower costs for younger adults. The Joint Economic Committee paper incorrectly claims that weakening the limit on age rating to a 5-to-1 ratio would not penalize any age group. The burden of such a policy change would actually fall heavily on older adults, according to Milliman research commissioned by AARP.  Under the AHCA:

• Average premiums would increase for all ages starting at about age 46.
• Premiums for 60- to 64-year-olds would increase by an average of $3,200, amounting to average unsubsidized premiums of almost $18,000 per year.  Meanwhile, 20- to 29-year-olds are expected to see significantly smaller average savings, of only $700 per year, giving them average unsubsidized premiums of $4,010 per year.

Weakening the limit on age rating would not encourage greater enrollment of younger adults. Modeling by Milliman found that:

• A 5-to-1 age rating change would have minimal impact on overall enrollment, including among younger adults.
• Net enrollment would increase by only 2 percent. Such a small change would have very little impact to reduce premiums.

The Maine case does not support a move to a 5-to-1 age rating. The Republican staff paper mischaracterizes Maine’s experience with age rating. Prior to the ACA, Maine was one of five states that required guaranteed issue and protections for people with preexisting conditions. Maine also limited age rating to a 1.5-to-1 ratio. However, a critical piece was missing: There was no law to incentivize participation in the market, such as the ACA’s individual mandate. As a result, fewer healthier individuals chose to enroll, accounting for high premiums prior to the ACA. In addition, prior to enactment of the ACA, the individual health insurance market in Maine had not yet benefited from the law’s key provisions, such as federal tax credits and cost-sharing reductions, consumer protections, and federal premium stabilization programs. Once the ACA was implemented, the age rating in Maine was modified to meet the federal rule of 3 to 1.

Pre-ACA, older adults faced significant obstacles to coverage in the individual market. The report fails to acknowledge that prior to the ACA, older adults faced difficulty getting or affording coverage in the individual market. Health insurance companies in the individual market were typically free to set significantly higher and often cost-prohibitive premiums based on an individual’s age, preexisting condition, gender and other factors. Insurance companies could also deny coverage to people who had a preexisting health condition. The report also fails to point out that people who receive coverage through their employer (or other group coverage) are typically charged the same rate, regardless of age. The 3-to-1 limit on age rating in current law is already a compromise and is very different from group coverage, where all ages are typically charged the same rates.

• Forty percent of older adults ages 50 to 64 have a declinable preexisting condition. Allowing insurance companies to charge higher rates to older adults is a proxy for allowing insurers to charge more for people with preexisting conditions.

Proposed age-adjusted tax credits fail to offset AHCA premium increases that would accompany the 5-to-1 age rating. The report states that a premium tax credit that increases with age could help keep premiums affordable for older adults. However, under the AHCA:

• Proposed tax credits for adults age 60 and over are only twice the amount adults under 30 would receive ($4,000 vs. $2,000), but premiums for older adults due to the 5-to-1 age rating could be five times as high.
• Lower- to moderate-income older adults would also see dramatic premium increases as a result of combined age rating and tax credit changes, by as much as $8,400 in 2017.

Conclusion: The provision in the American Health Care Act to weaken the 3-to-1 limit on age rating would have significant harmful impacts on older adults and would fail at its central goal of improving overall enrollment.