How Does Your Age Affect Your Health Insurance Premium?

Health insurance gets more expensive as we age. That's fairly well understood, and it's due to the fact that healthcare needs—and their associated expenses—also tend to increase with age. But insurance companies do have to follow some fairly specific regulations in terms of how they can adjust premiums based on a person's age.

This article will explain how those rules work,how your age will affect the cost of your health coverage, and how income-based premium subsidies grow to keep pace with age-related premium increases.

Under the Affordable Care Act (ACA) and subsequent regulations issued for its implementation, premiums for older enrollees with individual/family (non-group) and small group health coverage must be capped at no more than three times the premiums that apply to a 21-year-old.

Before the Affordable Care Act, insurers were generally free to set their own age-rating structures, and it was common to see premiums for older enrollees that were at least five times as high as the premiums that were charged for younger enrollees.

When lawmakers were drafting the ACA, they were trying to strike a compromise on this. They knew that capping premiums for older enrollees would result in higher premiums for younger enrollees since the same total amount of premium revenue would still need to be collected in order to cover the cost of claims.

They worried that requiring full community rating—in which premiums are the same for everyone, regardless of age—might make premiums too high for young adults and push them away from the risk pool. This would be problematic since young, healthy people are very much needed in the risk pool in order to offset the costs associated with older, sicker members (note that some states do prohibit age rating altogether, as discussed below).

But they also knew that the prevailing 5-to-1 (or higher) ratio would result in unaffordable premiums for older enrollees who didn't qualify for premium tax credits (premium subsidies).

3-to-1 Age Rating in Most States

The compromise ended up being an allowable age rating ratio of 3-to-1 for all new health plans sold in the individual and small group markets.

(These rating rules do not apply to self-insured health plans, or to large group health plans; in most states, "large group" is defined as a group with 51 or more employees).

A 21-year-old is considered the baseline, so the highest premiums that can be charged are three times the amount that's charged for a 21-year-old. But the standard age-rating scale is a curve rather than a straight line: Rates grow slowly for people on the younger end of the scale, and faster as you move along the age range.

You can see how this works in practice when you look at the federal default age rating chart (see page 4). If an insurance company is charging $200/month for a 21-year-old, they'll charge slightly more than twice that much ($408/month) for a 53-year-old, and three times as much ($600/month) for a person who is 64 or older.

Five states and the District of Columbia have established their own age-rating curves within that 3-to-1 ratio. In those states, the premiums for a 64-year-old will still be three times higher than the premiums for a 21-year-old, but the way the premiums change between those ages will differ from the federal default numbers that are used in most states.

And in three states—Massachusetts, New York, and Vermont—the state imposes a stricter overall age rating rule. Massachusetts caps age-rated premiums at 2-to-1, so older enrollees can only be charged twice as much as younger enrollees. New York and Vermont prohibit age rating altogether, meaning that older enrollees are charged the same premiums as younger enrollees (assuming they're in the same geographic area and selecting the same health plan).

(Note that there is some variation for some of these states between their individual and small group markets, in terms of allowable age rating variations.)

It's noteworthy that the 3-to-1 age rating rules do not allow premiums to be higher for people who are older than 64. So if a 90-year-old needs to purchase individual health insurance or is enrolled in a small group health plan, their premium will be the same as a 64-year-old's, and will still be just three times the price that's charged for a 21-year-old.

Most Americans become eligible for Medicare at age 65, so the cost of individual/family private health insurance after age 65 is irrelevant for most people.

However, recent immigrants are not allowed to purchase Medicare until they've been in the U.S. for at least five years. And people who don't have at least ten years of work history (or a spouse with at least ten years of work history) have to pay premiums for Medicare Part A—amounting to as much as $505/month in 2024—plus the regular premiums for Medicare Part B.

These individuals can purchase individual health insurance at the same prices that apply to a 64-year-old (with premium subsidies if they meet the eligibility guidelines). Prior to the ACA, most individual market health plans would not provide coverage to people over the age of 64.

So not only does the ACA allow these individuals to obtain health coverage if they're not eligible for premium-free Medicare Part A, it also caps their premiums at no more than three times the premiums that apply to younger enrollees.

And if a person continues to work for a small employer that offers health coverage, their premiums will continue to be the same as the rates that apply to a 64-year-old.

The ACA's age rating rules only apply to individual and small-group major medical plans. Health plans that aren't regulated by the ACA, such as short-term health insurance or health care sharing ministry plans, do not have to follow the age rating rules.

Age Rating Curve for Children Changed in 2018

Prior to 2018, the default federal age rating curve applied a single rate to all enrollees up to the age of 20, which was equal to 63.5% of the cost of coverage for a 21-year-old. It didn't matter if the child was 2 or 12 or 20, their rate was the same.

But this resulted in sharp premium increases in the year that a person went from being 20 to 21, and it didn't necessarily reflect the changing healthcare costs as children age.

So starting in 2018, the federal government revised the default federal age rating curve to create one rate for children age 0-14, and then separate age rating levels for ages 15 through 20, so that the age rating curve is much smoother than it used to be.

A 20-year-old is now charged 97% of the premium that applies to a 21-year-old, so the transition from 20 to 21 is much more similar to the transitions that apply as people age beyond 21.

(As noted above, there are some states that have created their own age-rating charts, so these numbers aren't used in every state.)

Larger Premium Subsidies for Higher Premiums

Because individual market premiums are higher for older adults, premium tax credits (subsidies) are also larger for older enrollees. The premium subsidies are designed to make the after-subsidy cost of the benchmark plan the same for two people with the same income, regardless of where they live or how old they are.

Since full-price premiums are up to three times larger for an older person, the premium subsidies have to be much larger in order to bring the after-subsidy cost down to a level that's considered affordable. These larger subsidies can be used to offset the cost of any metal-level plan, including plans that are less expensive than the benchmark plan.

The American Rescue Plan, enacted in 2021, includes temporary additional premium subsidies for people who buy individual/family health insurance in the marketplace. And the Inflation Reduction Act, enacted in 2022, has extended the subsidy enhancements through 2025.

The extra subsidies reduce the percentage of income that people have to pay for their health coverage, and also eliminate the subsidy cliff. This is particularly helpful for older enrollees, as their higher full-price premiums make the subsidy cliff more significant than it is for younger enrollees. (The subsidy enhancements could continue past the end of 2025 if Congress takes action to extend them again.)

Summary

As a result of the ACA, individual and small group health insurance premiums can vary based on age but not by more than a 3 to 1 ratio. This means that older enrollees cannot be charge more than the premium that's charged for a 21-year-old. And premiums for children are lower than the rates that apply to a 21-year-old. Some states set more restrictive rules for age rating ratios.

A Word From Verywell

Under the ACA, individual and small group plans can charge a person 64 or older a premium that's three times as much as they charge a 21-year-old. But most individual market enrollees are eligible for premium subsidies as long as they shop in the exchange; for the majority of enrollees, particularly those who are older, these subsidies cover the majority of the premium cost. And most small-group enrollees are eligible for substantial employer subsidies that cover the majority of the total premium cost.