Why Health Plan Costs Vary with Age
If you are looking for health insurance, you may be asked certain personal details including your age. Under the Affordable Care Act, insurance carriers are not permitted to ask about prior health conditions which might make insuring you more expensive, but they are still allowed to ask about your age. They may use your age to help set the amount you must pay each month as your policy premium. Typically, if you are older, the higher your premiums, with the largest premium increases occurring after age 50.
How Age Affects Insurance Costs
To understand why your premiums go up as you get older, you need to know a little about how insurance companies operate. Like any business, insurers try to make a profit by providing a product that you want, in this case, financial protection from large medical expenses. In order to make a profit and remain in operation, insurance companies hire analysts that evaluate the likelihood that people will need medical care.
These analysts break up the U.S. population into age groups and research their utilization of medical services. These analytical findings revealed that people tend to see a physician, get surgeries and buy prescription medications more often as they get older.
Example: Sample Silver plan premiums
In order to remain profitable, health insurers have determined that they must charge patients more if they are older. This is called age rating, and it is a legally protected insurance practice. In fact, every state—and the federal government—has some type of guideline for insurers to use in age rating clients.
The Legal Framework
In the United States, one of the most significant laws governing health insurance was the Affordable Care Act which was passed in 2010 under President Barack Obama. Not only did this law alter the cost of health insurance for many Americans, but it also changed how insurers charged their customers. Insurers were no longer allowed to demand higher premiums from more unhealthy policyholders or deny them a policy due to prior health issues.
Although age remained a metric for how much to charge policyholders, the ACA did impose limitations on age rating. Insurers were prohibited from charging older policyholders more than three times what they charged for younger policyholders. Insurers typically charge policyholders who are 21 years old the least, so this base rate could only be tripled when applied to even the oldest policyholders. (It should be noted, however, that not all states are in compliance with the 3:1 premium ratio law).
Planning for the Future
If you know that premiums on health insurance will grow as you get older, then you should probably take that into account as you draw closer to retirement. The steepest increases in health plan premiums occur after age 50, when your premiums will go from 1.78 times the 21 year old base rate to 3.0 times the base rate at age 64.
If you are planning on working up until the typical retirement age of 65, you will probably be able to obtain benefits from Medicare, the federal government’s medical insurance service that you have probably been paying into since you started working. If you don’t qualify for Medicare, you may still merit assistance from Medicaid, which assists low income households.
You may still obtain private insurance if you are on Medicare, and this is often a good idea because supplemental private insurance can cover medical services you may have had to pay for out-of-pocket. If you are going to receive supplemental insurance from your employer, you may not require a third policy, but for beneficiaries with only certain Medicare components, a secondary policy can help cover costs associated with chronic illness, long hospital stays, or intensive residential care.
How to Save Money on Health Premiums
It can be worrisome to look at the rising premiums on your health plan, but there are some strategies you can use to limit those costs. You may wish to try the following:
- Get a high deductible policy—if you are fairly healthy, then you can take advantage of a high deductible policy. You will pay considerably less in monthly premiums than you would with a low deductible plan, but you may have to pay thousands out-of-pocket if a medical emergency arises. However, you should get enough catastrophic coverage to weather most emergencies.
- Relocate—health plans are pegged to your geographic location, so some parts of the country pay much less for the same health coverage. You may wish to relocate to the Southwest or other regions where premiums are typically lower. Some states, like Hawaii, offer virtually free health coverage.
- Work part time—many employers appreciate the experience that many retirees possess and are eager enough to hire them that they offer health insurance even to part time employees. A light work schedule that also offers health coverage may be a truly worthwhile bargain.
- Buy COBRA insurance—if you are about to leave your job soon, they you may wish to look into getting COBRA insurance. COBRA extends your employer health plan for 18 months following a termination, and COBRA premiums are usually less than those for comparable private plans.
- Buy an ACA plan—although there is some question as to how much longer they may be available, Obamacare policies found on the health insurance exchanges are usually much cheaper than other policies if you qualify for government subsidies. You must meet certain income requirements to qualify for these subsidies.
Although rising premiums is a sad fact of life, health insurance isn’t something you should forgo. The underlying logic that you are more likely to get injured or ill as you age is sound and very real. While you may not be able to avoid these health issues, you can avoid the financial problems often associated with them. With the right health insurance plan from the right insurance carrier, you can set aside your worries about getting quality health care, and enjoy your sunset years in the way that you deserve.
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