The so-called 3:1 ratio, due to take effect in 2014 in the individual and small-group markets, is a cornerstone of consumer safeguards enshrined in the 2010 Patient Protection and Affordable Care Act. The law also bars insurers from policies that discriminate on the basis of gender and pre-existing conditions.
Health insurers, which often charge adults over age 50 far higher rates, had asked HHS to start out with a 5:1 ratio in 2014 and move gradually to the tighter 3:1 ratio over a number of years, saying too abrupt a change would cause rates for younger beneficiaries to skyrocket.
“The new restrictions on age rating will result in an overnight increase in health care costs for people in their 20s, 30s, and early 40s,” said Karen Ignagni, president of America’s Health Insurance Plans, an insurance trade association.
She and other industry executives have warned that higher costs could encourage young adults to forego coverage and thus deny the industry the younger, healthier customers that were supposed to keep costs down as the health insurance market implements President Barack Obama’s reform law.
The law imposes a financial penalty on most adults who fail to obtain coverage by January 1, 2014. But industry officials have complained that the fine may be too small to alter behavior, particularly if costs rise sharply.
“This increases the likelihood that younger, healthier people forgo purchasing insurance until they are sick or injured. When this happens, costs go up for everyone, young and old,” Ignagni said.
AHIP said people in their 20s and 30s could see insurance premiums jump 29 percent and 19 percent, respectively, while adults aged 50 to 64 receive reductions of between 5 percent and 8 percent.
The administration said in the 145-page regulation that its hands were tied by the healthcare law.
“We do not have the legal authority to permit any rating factors in the final rule other than those explicitly permitted (by the law),” HHS said. “Further, we do not have the legal authority to provide for a phase-in.”
U.S. officials contend that any pressure for higher rates would be mitigated by greater competition and federal subsidies that will be available for working families in the form of premium tax credits.
Consumer groups including AARP, the powerful lobbying group for older Americans, welcomed the decision.
“Implementing a limited use of age rating immediately thwarts what would have been a negative and disproportionate effect on Americans aged 50 To 64,” said AARP Executive Vice President Nancy LeaMond.
The Affordable Care Act, nicknamed “Obamacare,” is expected to provide health coverage for an estimated 38 million people after 2014. Most are expected to obtain subsidized private insurance via new online state healthcare marketplaces that are scheduled to start enrolling beneficiaries on October 1.
The administration is also working with half of the 50 U.S. states to extend the Medicaid program for the poor to cover adults living near the federal poverty level.
Aside from age, the law still allows insurers to vary premiums based on tobacco use, family size and geography. Other forms of discrimination based on gender, past insurance claims, occupation or the size of a small employer will not be permitted from 2014.
(Additional reporting by Caroline Humer; Editing by Ros Krasny and Dan Grebler)