The AARP wants voters to call on Congress and block the passage of a new republican plan to replace Obamacare. The non-partisan advocacy group says provisions in the American Health Care Act would allow insurance companies to charge older Americans up to five times more for insurance than they charge younger Americans, and that could cause premiums to spike for seniors.

What's the age tax?

Millions of Americans between the ages of 50 and 64 buy health insurance through the Affordable Care Act marketplaces, and if the republicans' plan to dismantle Obamacare succeeds, those Americans could get an unwelcome surprise in their monthly premiums because of a change to age ratings.

A frustrated senior tosses up his hands as if to give up.

Image source: Getty Images.

Older Americans use more healthcare products and services than younger Americans, so they're more expensive to insure. However, the amount of money that older Americans can be charged by insurers relative to young Americans is capped by the Affordable Care Act at a 3:1 ratio.

In addition to that cap, the Affordable Care Act provides financial help with premiums and out-of-pocket expenses that keep healthcare costs down for older Americans. Americans earning less than four times the poverty level ($97,200 for a family of four in 2017) receive premium subsidies, and people with income up to 2.5 times the poverty level qualify for help with their deductibles and co-pays. Last year, premium subsidies helped reduce the average individual's premium to about $100 per month.

If the American Health Care Act passes, those cost-savings measures disappear. Instead, the American Health Care Act shifts from an income-based system to a flat tax credit system that's based on age. Younger Americans can receive a flat $2,000 credit per year, while older Americans can receive up to $4,000 per year.

While the tax credit given to older Americans is twice the amount that's being given to younger Americans, the Act would allow insurers to price their healthcare plans as much as five times higher for older enrollees.

According to the AARP's number-crunching, that so-called "age-tax" could significantly drive up the cost of health insurance for older Americans. A 55-year-old earning $25,000 a year could end up paying $3,600 more in premiums under the replacement plan, while a 64-year old earnings $25,000 could pay $7,000 more.

A study commissioned by AARP's Public Policy Institute also finds that it won't just be Americans who qualify for tax credits that feel the pinch. If insurers are allowed to switch to a 5:1 age rating, the average premium for someone age 60 and up could increase to $17,916 per year from $14,724 in 2018, or 22%. Premiums on Americans between age 50 and 59 could climb 13% to $12,840.

According to Kaiser Family Foundation's research, older Americans in states with historically higher healthcare costs will be hit hardest.

Why bother changing the age rating?

Since the age rating is 3:1 now, insurers may be charging young Americans an artificially high premium in order to get premiums that are charged to older members more in line with costs. If so, then expanding the age rating to 5:1 may reduce premiums for young Americans, increasing the likelihood they'll get insurance.

Overall, average premiums on people younger than 30 are only expected to decline by about $696 per year. Those savings pale in comparison to the increases facing older Americans.

Will it pass?

About one dozen republican senators have said they object to one or more provisions in the House reform plan. However, it's anyone's guess if those objections will lead them to vote against what could be their best chance at an Obamacare repeal.

A more comprehensive replacement plan would require 60 votes in the Senate to become law, but because the America Health Care Act is being proposed through a less stringent pathway called reconciliation, it can pass with a more manageable 51 votes. Since Senate democrats aren't likely to cross over and support reform that dismantles Obamacare, this may be the only plan that actually has a shot at passing. 

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