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New Tax Credits Blunt Insurance Premium Increases for Young Adults

Insurance companies are urging the federal government to delay or loosen a requirement in health reform that they charge older people no more than triple the premium that they charge younger people for the same plan.  Their main argument is that some young, healthy people will see big premium increases in 2014 when these new age-rating rules are slated to take effect in the individual insurance market, and that this will discourage them from buying coverage.

But a new analysis by the Kaiser Family Foundation finds that 80 percent of the people now enrolled through the individual market will pay less for the same plan under the 3:1 age-rating limit than they would pay without it, when new federal premium subsidies are taken into account.

So while the 3:1 age limit raises premiums for many younger enrollees, “they would not pay more because they would receive a tax credit that caps their premium obligation as a percentage of their income,” it explains.  (The 80 percent figure reflects only the impact of the age-rating limit, not the other elements of health reform that are expected to affect premiums.)

For more on the tax credits available under health reform, see our recent post.

In addition to access to new federal subsidies, health reform will give young people the option of paying lower premiums by buying “catastrophic” insurance plans, the analysis notes.  These policies, which are available only to people younger than 30 and older people who meet certain criteria, have some drawbacks.  They will have very high annual deductibles (roughly $6,000) and aren’t eligible for purchase with the federal tax credits.  But policymakers created them as part of health reform to provide a coverage option to young, healthy people who don’t expect to need much medical care and are mainly interested in a low premium.