Before the passage of the Affordable Care Act (ACA), 1 in 3 families with older adults spent at least 10% of after-tax household income on healthcare. When spending reaches or exceeds 10%, healthcare costs are considered a "high financial-health burden," in the words of AARP.
The Affordable Care Act aimed to increase healthcare access and affordability for older adults, defined as individuals ages 50 to 64. Adults in this demographic group often have pre-existing conditions and are big consumers of healthcare, but are not yet eligible for Medicaid.
The ACA imposed a 3:1 limit on"age rating" -- in other words, it restricted insurers from charging older adults more than three times what young people pay in the same geographic region. AARP described this limit as "a critical consumer protection." Only a small number of states imposed restrictions on age-rating pre-ACA, so the ACA provided protection from high rates that was previously unavailable for many older Americans.
Now that protection is at risk. The Republicans have introduced The American Health Care Act as a proposal to replace Obamacare. Unfortunately, the American Health Care Act could leave you with thousands in extra insurance expenditures if you're older but not yet old enough to be Medicare-eligible.
What is the American Health Care Act?
The American Health Care Act is a bill introduced to serve as a replacement if Congress successfully undoes much of the Affordable Care Act.
The American Health Care Act (AHCA) eliminates the individual mandate, which is the Obamacare provision that encouraged young and healthy people to buy policies by charging a tax if they went uncovered.
The AHCA also restructures Medicaid and offers refundable tax credits for the purchase of health insurance. It does promise continued protection for those with pre-existing conditions; however, it allows insurers to introduce a surcharge for those who allow their coverage to lapse.
Perhaps most important for seniors, the Act proposes changing the permissible age variation in health insurance rates from the 3:1 ratio allowable under the ACA to a 5:1 ratio. If this provision passes, then insurance companies would be able to charge the oldest adult insurance buyers up to five times more than the youngest adults in the same area.
How much more could insurance cost you?
By removing the 3:1 limit, the American Health Care Act could significantly increase the cost of health insurance for seniors.
Before the AHCA was introduced, AARP's Public Policy Institute commissioned a study to assess the impact of changing the 3:1 limit to the 5:1 limit that the AHCA mandates. Milliman, the independent actuarial firm performing the study, found that adults aged 60 and older would experience a dramatic increase in premiums.
How dramatic? The average premium increase would be $3,200. This would bring average annual premiums up to $17,900 for someone aged 60 or older who purchases health insurance on the individual market.
Commonwealth Fund also analyzed the potential cost increases and found that everyone over age 47 would experience a premium increase.
After the release of the AHCA, AARP analyzed the proposed changes and suggested that cost increases could be even higher for seniors than originally predicted. A letter to Congress sent by AARP warned that, when taking into account both the rules for refundable tax credits and the 5:1 ratio, premiums could increase by as much as $3,600 for a 55-year-old with a $25,000 annual income .
For a 64-year-old with the same $25,000 income, premiums could go up as much as $7,000. If that same 64-year-old had an income of just $15,000 a year, the premium increase would actually be higher -- up to $8,400.
How likely is the law to pass?
The American Health Care Act is drawing criticism from both the left and right. Although it has the support of President Trump, its future is uncertain. However, most current proposals aimed at modification or replacement of the ACA include changes to the ACA's 3:1 age rating limit.
Paul Ryan's "A Better Way" (link opens PDF) plan describes the 3:1 ratio as "an unrealistic regulation" and stresses the need to "fix the age-rating ratio" by "limiting the cost of an older individual's plan to no more than five times what a younger person pays in premiums."
The State Age Rating Flexibility Act of 2017, another Republican proposal, was introduced by Representative Larry Bucshon in H.R. 708. The Act is supported by a number of Republicans, including Orrin Hatch (R-Utah) and Rep. Fred Upton (R-Mich.). It also changes the 3:1 ratio to a 5:1 ratio.
These proposals are actually a best-case scenario, as some proposed ACA replacement plans include no restrictions at all on how much more older policyholders can be charged compared with younger insured individuals.
With all current Republican healthcare proposals including changes to the age ratio rules, it is likely that any ACA repeal, reform, or modification legislation will alter this rule in some way that increases costs for older insurance-buyers.
Changes to the ACA seem inevitable, even as legislators struggle to coalesce around a concrete plan. Republican plans to use the budget reconciliation process will allow modifications of the ACA to occur with only 51 votes in the Senate, so no cooperation from Democrats is required. This means older Americans face a serious threat of higher premiums.
What can you do to protect yourself from costs?
If an ACA replacement plan changes the rules to allow insurers to charge older adults up to five times more than younger people, there will be little you can do to avoid higher premiums if you're 47 or older.
Some states may impose stricter regulations on insurers than the federal rules, including keeping the 3:1 limit. And many proposals to modify the ACA include provisions that would allow the purchase of insurance across state lines. This could make it possible to shop for policies offered by a company in a state that limits how much more older policyholders could be charged.
Shopping around between providers will become much more important in general if the ACA's protections for older Americans are modified, but even this may not save you from premiums that are higher than what you're paying now.