Age Rating Under Comprehensive Health Care Reform: Implications for Coverage, Costs, and Household Financial Burdens

One of the central goals of comprehensive health care reform is to eliminate discrimination by health status in the sales and pricing of health insurance and reduce the financial burdens associated with poor health. Consequently, current proposals being considered by Congress would prohibit health insurers from setting premiums based explicitly on the health experience of enrollees. These proposals would promote sharing of health care risk by limiting, but not eliminating, the differences in premiums charged to individuals of different ages. The age rating limits are quite different across the proposals under consideration. The Baucus proposal (as of September 16, 2009), for example, would allow age rating bands of 5:1 (i.e., the premiums charged the oldest adults could be no more than 5 times those charged younger adults), while the House TriCommittee proposal and the Senate Health, Education, Labor, and Pension (HELP) Committee proposal would limit age rating bands to 2:1. The larger the variation permitted in premiums based upon age, the less broadly risk is shared, as health care expenditures tend to increase with age. The smaller the variation permitted, the greater is the extent to which younger individuals who purchase coverage will tend to cross-subsidize the health care expenses of older individuals.