HHS' former insurance exchange chief tells Inside Health Policy that a phase-in of “age rating” compression generally is a better approach than an abrupt change, but Congress' decision to initiate the health law's 3:1 age band immediately in 2014 will stand because the department lacks authority to phase in the requirement. The insurance industry disagrees, arguing that HHS does have flexibility to establish a transition period for the requirement that in 2014 older individuals cannot be charged more than three times what younger individuals pay in premiums. Insurers have said a phase-in is needed to prevent “rate shock” for young consumers that could potentially drive them from the market.
Compressing the bands -- which now vary by state -- was a key priority for AARP, which had called for a 2:1 ratio. Insurers sought a 5:1 age band, and also had pushed for a transition during the health reform debate.
Joel Ario, former director of HHS' Office of Health Insurance Exchanges who is now a managing director with Manatt Health Solutions, says there is precedent for phasing in tighter age bands, but the decision when the health law was passed was not to do a phase-in, though it had been discussed at the time.
America's Health Insurance Plans (AHIP) and other insurers have been vocal about the need to move slower on the compression, saying that an overnight change will raise premiums for younger individuals and could create a disincentive for them to purchase health insurance. This result would be counter to the ACA's intent of bringing in younger, healthier people into the market to spread risk and stabilize premiums, insurers argue. An industry lobbyist says the impact of the age band issue is going to vary widely -- generally, states that have the most flexibility with age bands are the ones that have the lowest level of regulation, and it is those states that will be subject to the widest swing in premiums once the ACA's provision goes into effect.
On Friday (Oct. 5), during an AHIP conference, President and CEO Karen Ignagni reiterated that the law's immediate age band compression, as well as other reform provisions such as essential health benefits, could put premiums out of reach for young people.
HHS has yet to issue guidance on the provision. One insurance source points to HHS' essential health benefits transitional approach for 2014 and 2015 as evidence that it could take a similar tack with age bands. AHIP has said that the transition should start at 5:1 and regulators should see how that goes before deciding whether to compress the ratio further.
An industry source says the vast majority of states have age bands ranging from 5:1 to 7:1. Massachusetts is one state that has a 2:1 age band, but the source says that the subsidies under Massachusetts health reform were more generous than what is found in the ACA. Other states, such as Minnesota, already have a 3:1 band in place. Ario says carriers could choose to phase in age band compression but they usually say that for competitive reasons they can't unless everyone does.
Consumer advocates do not think HHS has the regulatory flexibility to phase in the age bands, and say such an approach would require a legislative fix. In a report earlier this year, consumer representatives to the National Association of Insurance Commissioners said HHS should establish a standardized approach for implementing the age rating limits.
Sabrina Corlette, an NAIC consumer representative, has said she thinks insurers' concerns about an immediate switch to 3:1 are “overblown” because many young people will be eligible for the reform law's premium tax credits and that would mitigate premium increases.
Ario, who previously was Pennsylvania's insurance commissioner, adds that typically age bands are grouped in five-year increments, so one band for example could be for individuals 19 to 24 years old and then the next band would be for those 25 to 30 years old. As an individual ages, when they enter a new band, premiums based on age would increase. Ario said he does not know of anyone that does one-year bands, which runs counter to what some consumer advocates want HHS to do when it issues regulations.
Consumers that crafted the NAIC report were split on how long each age band should be in effect, with some wanting rates to increase incrementally every year as a person ages and others wanting five-year bands, Corlette said Nonetheless, HHS should establish a national approach for how the requirements are implemented, the advocates said.
Given where most states are, industry felt that even 5:1 age bands would be a leap, the lobbyist says. As the health reform bill was being debated, pressure increased for it to include an age band that was tighter than 5:1, and as movement in that direction was becoming clear industry made the point that the law's age band provision should be phased in, the source says.