How Obamacare Will Affect Health Insurance Rates by Age Group

One of the greatest health hazards of growing older has long been losing access to health insurance before reaching age 65 and qualifying for Medicare. Beginning next year, this will change under Obamacare. Beyond knowing there will be big changes, it is very challenging to figure out what the world of health insurance will look like for baby boomers who are not yet old enough to qualify for Medicare coverage.

Employer group policies do guarantee coverage for older applicants. For individual applicants outside the employer group market, however, the story has been much different. In most states, insurers have been allowed to reject applicants with pre-existing medical conditions. Even if they did agree to write a policy for an older applicant, they have had the freedom to charge rates many times higher than the premiums for comparable coverage charged to younger and healthier applicants.

But under health care reform, conditions in the non-group market for individual and family policies are set to change next year. No applicant can be turned down for health insurance due to a pre-existing condition or for any other reason. Insurers can still charge higher rates to older individual policyholders, but the ratios, or "bands," by which age-based rates can differ have been reduced to 3:1 (charging an adult age 64 years or older more than three times the premium they charge a 21-year-old for the same policy) from 5:1 under existing practices.

Anyone expecting major price declines for older consumers, however, will be disappointed. HealthPocket, an online health plan information and ranking service, provided a detailed look at next year's health insurance rates in California, Connecticut, Ohio and Rhode Island. These four states are among a growing number where insurers have already filed rates they propose charging in the new state-based health insurance exchanges being set up under the Affordable Care Act.

Premiums for a 60-year-old person will be higher in all four states next year than this year. But there are so many reasons for these changes that it would be a mistake to simply blame Obamacare for causing higher rates. Steve Zaleznick, HealthPocket's head of consumer strategy and development, stresses that consumers need to look specifically at their state's offerings and should not base decisions on what's happening in other states.

Even the rates in these four states are subject to change. Further, the impact of Obamacare may be more modest in certain states - HealthPocket experts cited Hawaii, Massachusetts, New Jersey, New York, Vermont and Washington - that have already imposed some of the features that insurers in all states must begin providing in 2014.

In the four states used for the comparisons here, HealthPocket looked at current rate filings, those that have been filed for the new exchanges in 2014 and individual health insurance policies offered by all insurers in these states for 60-year-old males and females. (There are currently gender differences in rates in many states, but these will disappear next year because Obamacare doesn't allow gender-based pricing.)

HealthPocket also reviewed rates in different geographic markets within each of the four states and came up with averages for 2013 and 2014 and looked at the highest and lowest premiums charged by insurers in these markets.

There will be a shorter range between high and low rates under Obamacare than appears from the 2013 examples provided here. That's because health insurance policies are likely to be more standardized next year under the Affordable Care Act than they are today. The ACA says health insurers can offer policies with four types of payment structures, which have come to be known as metal tiers:

1. Bronze plans are the cheapest because insurers pay only 60 percent of a policyholder's covered health expenses, and the policyholder must come up with the other 40 percent.

2. Silver plans split covered expenses 70-30.

3. Gold plans split covered expenses 80-20.

4. Platinum plans split covered expenses 90-10.

The 2014 rate filings used by HealthPocket are for bronze plans. The same insurer may offer multiple plans within each tier, featuring different combinations of deductibles, co-pays and other coverage options. But each bronze plan requires the insurer to pay at least 60 percent of covered expenses.

Here are the 2014 rates as filed for Obamacare:

Source: HealthPocket.com

Rhode Island features only modest differences among insurance plans in 2014, in large part because the state is so small it has only a single rating district. Its state exchange received rate filings from only one insurer - Blue Cross & Blue Shield of Rhode Island - and the company has filed 2014 rates for only three types of individual bronze insurance plans.

Other states include more insurers and geographic pricing areas, and it will be important to look at the details of plans offered where you live.

Comparing plans under Obamacare to 2013 options should be done carefully, says Kev Coleman, HealthPocket's head of research. The 2013 rates below reflect modest gender-based differences. The table also includes information on the average percent of time that insurers either decline coverage entirely, and the percent of time they offer coverage at a higher price than was originally quoted.

Source: HealthPocket.com

One reason direct comparisons can be difficult between 2013 and 2014 is that insurers face higher claim costs next year. Remember that no one can be turned down for coverage in 2014. Even sick people with pre-existing conditions will be able to get coverage. Also, insurers will no longer be able to impose lifetime payout limits on anyone next year. Therefore, the 2014 rates will need to provide insurers with enough money to cover 60-year-olds who will, as a group, be less healthy in 2014 than the 60-year-olds who have individual health insurance this year.

Another reason it's tough to simply do an apples-to-apples comparison is that insurers can currently decline people who apply for coverage at the rates shown here. Rhode Island has very low rates of decline and also doesn't allow what's called up-rating, according to HealthPocket. In the other states, however, between 16 and 21 percent of all applications for individual and family policies are declined, and the rejection rates for some insurers approach 90 percent. These rates will fall to zero under Obamacare.

Further, an average of 27 percent (California), 29 percent (Connecticut) and 41 percent (Ohio) of the time, the rates that people are quoted wind up being lower than the rates they are actually offered. That's usually because an applicant's health history contains information that renders him or her ineligible for so-called preferred rates. But this distinction is often not made clear in the initial sales process. The bottom line is that the rates quoted for individual and family policies in 2013 are often not the rates actually offered to consumers. The rates under Obamacare, by comparison, cannot be increased for reasons other than age, location and smoking history.

Lastly, the 2014 rates filed for Obamacare represent an enormous "best guess" by insurers about how their 2014 claims experience will turn out. While the law's individual mandate requires nearly everyone to have health insurance, the penalties for not doing so will be modest next year. Many younger Americans could well decide it will be cheaper to pay a $95 penalty than to have health insurance.

Under Obamacare, it will be the younger generations' participation that helps make coverage affordable for everyone else. Younger people tend to have very low insurance claims, which explains why so many of them forgo insurance entirely. If too many of them continue to avoid buying insurance, then the rates charged to individual older Americans will need to rise in 2015 and perhaps beyond.

Twitter: @PhilMoeller