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How age impacts your health insurance costs

Written by: Elizabeth Walker
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Originally published on August 24, 2022. Last updated September 1, 2022.

When you’re sick, injured, or have unexpectedly high medical costs, health insurance acts as an important safety net that keeps you from paying more out-of-pocket than you would without it. When determining how much you can spend on a health plan, one of the most important aspects to consider is the premium you need to pay on that plan.

One major factor that affects the average premium rate is your age. The older you get, the more risk you pose to health insurance companies, so your insurance premiums will likely rise as you get older. This is because getting older means you’ll typically have more healthcare needs and in turn, increased medical expenses.

But insurance companies have to follow some regulations regarding how they can adjust premiums based on a person's age. Below we’ll go over how exactly age can impact your premiums and what options you have to keep healthcare costs as low as possible.

Is your employer offering you a health reimbursement arrangement? Learn more about them in our guide

What can be used to determine your health insurance premium

Since the Affordable Care Act (ACA) was enacted, the factors health insurers can use to assess plan premiums have changed. If you’re considering enrolling in a health plan for the first time, or want to revise your current plan during open enrollment, it helps to know what affects the monthly premium price you’ll end up paying.

The factors insurers can legally use to determine your monthly premium amount are:

  • Age
  • Location
  • Tobacco use
  • Household size (i.e., individual or family enrollment status)
  • Type of metal tier plan (i.e., platinum, gold, silver, or bronze plans)

Factors that aren’t legally allowed to be used to determine your monthly payments are:

  • Your current health status
  • Any pre-existing conditions
  • Your sex

How age affects your health insurance costs

Out of the factors above, the most significant factor affecting your health insurance rate is your age range. Before the ACA, insurers were free to set their own rules regarding age, and it was common for older enrollees to pay at almost five times more1 than the premiums set for younger enrollees.

But now, there’s a limit to how much more insurance companies can charge you based on your age. Federal government rules were put in place to ensure insurance companies couldn’t price gouge older adults to cover any expected increased insurance costs.

The rule states that anyone 64 or older can’t be charged more than three times the base rate, which is the premium for a 21-year-old. Rates go up gradually as a policyholder ages, with the largest increase occurring after age 50.

Individuals under 21 are only charged a fraction of the base rate since they tend to have fewer health risks.

Why do health insurance premiums increase with age?

Increased health risks

Your age helps insurance companies estimate how much you’ll use your health plan. As you age, health risks are more likely to increase. This means you’ll have a greater chance of needing hospitalized care for illnesses, injuries, and other medical conditions.

For insurers, this places you at a higher risk for making a claim. To offset potential claims, insurance companies will ask for a higher premium to help pay for the extra healthcare services you are more likely to need.

More frequent healthcare expenses

Older individuals generally need more money to cover more frequent medical expenses, such as routine healthcare, treatments, and maybe even surgeries. You may need a higher amount insured to cover your routine medical costs. This, in turn, directly impacts your average health insurance premium.

It also becomes more challenging to determine your risk factors and estimate health-related expenses as you get older. This is why health insurance companies put the federal age cap in place for older individuals buying a new medical policy at around 65–80 years old.

Critical illnesses and pre-existing conditions

Unfortunately, aging also comes with a higher chance of getting a critical illness. This includes ailments like stroke, cancer, kidney failure, heart attack, cardiovascular issues, and more.

If you want to be covered against these conditions, you may want critical illness coverage or to have a higher sum insured under your individual plan. Either way, you’ll likely end up paying a higher plan premium amount.

Additionally, older individuals are more likely to have a pre-existing health condition, such as diabetes, high blood pressure, or asthma. While insurance companies can’t use a pre-existing medical condition to charge you more for insurance, the condition might be more severe when you’re older, thus requiring more medical care and prescription drugs.

Are there any state exceptions to the federal age rule?

A few states set their own standards for determining medical insurance rates. Per the federal government rule, insurance companies aren’t allowed to increase the overall premium above three times the base rate for the oldest individuals in their state. However, states can lessen the gap even further between the premiums paid by the youngest and oldest people in their state.

While this makes plan premium prices more equal, it may also mean younger people will pay more than they would in a different state while older people will pay less.

The following states have set their own guidelines regarding age:

  • New York and Vermont: These states don’t allow using age as a factor when determining health insurance rates. Therefore, their premiums don’t vary based on age across the board.
  • Alabama, Mississippi, and Oregon: The federal rule applies to people 21 and older. But in these states, people under 21 pay a premium set at 63.5% of the base rate.
  • Massachusetts: This state has its own rating rules for all age groups. For instance, anyone ages 21- 24 pays 118% of the base rate. Anyone 49 and above has a lower age ratio than the federal amount.
  • Minnesota: The federal rule applies to people 21 and older. But while federal ratios vary for the under 21 age group, Minnesota uses 89% of the base rate for all policyholders under 21.
  • Utah: This state follows federal rules for the 64 and older age group. However, people ages 27–36 pay almost 140% more than the base rate in Utah.
    • Rates for children under age 14 have an average health insurance cost fixed at 79% of the base rate.
  • Washington, D.C.: Rate factors are lower than federal amounts for all age groups. Individuals age 64 and older pay only two times the base rate rather than three times the base amount.

How premium tax credits can offset higher premiums

Now that you know how age affects your health insurance premiums, you might be wondering how you can get financial assistance if you have a higher than average premium amount.

Premium tax credits, or subsidies, are one form of assistance that can help pay for insurance premiums. These tax credits are available to anyone who purchases a plan on the Health Insurance Marketplace as long as your household income is below a certain threshold.

Because individual market premiums are up to three times more costly for older individuals, the premium subsidies are much larger to bring the after-subsidy cost down to a price that's considered affordable. These larger subsidies can offset the cost of any metal-level plan, including insurance plans that are less expensive than the benchmark silver plan.

Additionally, the American Rescue Plan, a health policy signed into effect in 2021 to address the COVID-19 pandemic, includes temporary additional premium subsidies for people who buy a policy on the federal health insurance exchange.

These extra subsidies, which have been extended through the end of 2025, reduce the percentage of income that individuals have to pay for their health insurance coverage and eliminate the subsidy cliff. A subsidy cliff is when the premium tax credit eligibility normally ends abruptly at a household income of 400% of the poverty level.

This especially helps older enrollees, as their higher premiums costs make the subsidy cliff more significant than it is for younger enrollees.

Age-based health insurance options

If you’re an older individual, you’ve probably had an employer health plan at some point. Employer-sponsored health insurance is the traditional way of insuring employees. Employers pay a fixed premium to an insurance carrier that in turn covers employees’ medical claims.

Providing group health insurance can help employers retain their best employees and enhance overall workplace satisfaction and productivity. According to our data, older employees are more likely to feel their employer values their physical health. This may be because healthcare is used more frequently by older employees.

However, employer-provided health insurance can be rigid, expensive, and not offer enough coverage for all employees’ healthcare needs.

Based on your age, you have a few other health coverage options if you don’t want or don’t have an employer-sponsored health plan.

Medicaid

If you meet income requirements, you may be eligible to enroll in your state’s federally funded Medicaid program. Eligibility for this type of health insurance depends on your income, family size, and whether your state has adopted the expanded form of Medicaid.

In states that have expanded the Medicaid program, the household income limit is set to 138% of the federal poverty level (FPL).

Medicare

If you're age 65 and paid into Social Security while working, you’re eligible for Medicare automatically. Medicare is a government health insurance program only for people who are age 65 and older, have disabilities, or have end-stage renal disease (ESRD).

Once you're on Medicare, you can enroll in a Medigap or Medicare Advantage plan to help with costs not fully paid by Medicare. While some Medigap rates are based on age, Medicare Advantage plans don’t count age as a factor.

If you’re still employed at 65, and you have coverage under an employer-sponsored group plan at a company with 20 employees or more, then you don’t have to enroll in Medicare right away.

However, you may want to enroll in Medicare Part A anyway—even if you have group health coverage already. It won’t cost you anything, and this way, Medicare can serve as your secondary insurance and pay for anything your employer-sponsored health plan doesn’t cover.

Options for younger individuals

If you are under 26 years old, you have three options for getting health insurance, if you don’t have a plan through your employer:

  • Depending on your income, you may qualify for Medicaid.
  • You can stay on your parent's health insurance policy until age 26.
    • New York allows parents to extend coverage for children up to age 29 under the “Age 29” Dependent Coverage Extension law2.
  • You can purchase individual coverage through the Health Insurance Marketplace.

Conclusion

Your age is the most important factor in determining your health insurance premium. But, if you’re an older individual who is concerned about premium costs, getting an affordable plan that covers all your healthcare needs is still possible. You can compare your available health insurance options, consider premium tax credits and other financial help, and pick the one with the most comprehensive health coverage based on your age.

Not receiving a necessary medical service can worsen health conditions and delay treatments, ultimately leading to poorer outcomes and increased medical expenses. By having health insurance, you can be sure you’ll stay as healthy as possible at any age.

This article was originally published on December 17, 2020. It was last updated on August 24, 2022.

1https://www.commonwealthfund.org/publications/issue-briefs/2018/apr/how-affordable-care-act-has-affected-health-coverage-young-men#:~:text=Prior%20to%20the%20ACA%2C%20young%20women%20paid%20as%20much%20as%2045%20percent%20more%20for%20health%20insurance%20than%20did%20young%20men.2%20A%2064%2Dyear%2Dold%20would%20pay%20about%204.8%20times%20as%20much%20as%20a%2026%2Dyear%2Dold%20for%20the%20same%20coverage.3

2https://www.dfs.ny.gov/consumers/health_insurance/cobra_and_premium_assistance

Originally published on August 24, 2022. Last updated September 1, 2022.
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