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New Rate Caps Will Mean Higher Rates For Younger Insureds in 2014


The Obama administration recently finalized new safeguards that will set limits on health insurance rates for older insureds.  The administration moved forward with these tighter restrictions amid industry warnings that these safeguards will cause younger insureds to pay more for their health insurance.  These safeguards include a 3:1 ratio limit effective in 2014 for individual and small group markets which would prohibit insurers from charging older insureds more than three times the cost of coverage for younger adults.  Currently, health insurers charge adults over 50 higher rates.

Karen Ignagni, president of America’s Health Insurance Plans (AHIP), an insurance trade association, has warned that the new safeguards will cause an overnight increase in cost for younger adults.  In order to prevent this, health insurers asked The Department of Health and Human Services to phase in the reform by starting out with a 5:1 ratio in 2014 and gradually moving toward the more restrictive 3:1 ratio in subsequent years, as a change that was too abrupt would cause rates for younger adults to skyrocket.  This request was denied by HHS, as they contend they do not have the legal authority to provide a phase-in.

Ignagni, and other industry executives, have warned that higher costs to young people could encourage them to decline coverage until they are sick or injured, which would eventually cause costs to go up for everyone.  AHIP has said that young adults in their 20s could see insurance premiums jump at least 29 percent, while adults ages 50-64 could see their rates drop by 5 to 8 percent.  Even though the new law will impose a fine for anyone that does not have insurance coverage, industry officials believe that the fines will not be high enough to change the behavior, especially if rates skyrocket as expected.

While industry executives are warning of the negative impact of the safeguards, consumer groups, such as AARP, are welcoming the decision.


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