The downside to changing the ACA's rate-banding rule

Calculator on American flag
Changing the ACA's rate-banding ratio to 5:1 could increase the federal deficit by $11.2 billion. (Getty/MrLonelyWalker)

Raising the limit on how much more health insurers can charge older people in the individual marketplaces would lead to greater federal spending compared to another proposal to encourage more young enrollees, a new analysis concludes.

The Affordable Care Act’s 3-1 rate banding rule means insurers can charge older adults no more than three times as much as younger adults for marketplace plans. But some, including insurers, state regulators and prominent Republicans designing ACA repeal-and-replace plans, have advocated for changing the ratio to 5:1, according to The Commonwealth Fund.  

The organization conducted an analysis to compare that approach with one floated by the Obama administration, in which young adults who qualify would receive larger premium tax credits than they currently do under the ACA.

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Total health insurance enrollment is similar under both proposals. But the two proposals would affect individual market enrollment differently, with the 5:1 rate banding leading to more young enrollees than there would be under the enhanced tax credits proposal. But reduced coverage for older individuals, who often are at greater risk for health problems, could have the unintended consequence of increasing uncompensated care for providers, the analysis adds.


Looking at a different metric, the 5:1 rate banding scenario would slightly lower individual market premiums for those younger than 47 and raise premiums for those older than 47, while the enhanced tax credits proposal would lead to a small reduction in unsubsidized premiums for all age groups.

Those higher premiums for older adults under the 5:1 rate banding proposal, the analysis says, would spur “substantially higher” premium tax credit spending, thus increasing the federal deficit by $11.2 billion. By comparison, the enhanced tax credits proposal would increase federal spending by $4 billion.

Policymakers should take note of these findings as they consider different ACA alternatives, the analysis concludes. House Republicans are already meeting to iron out their repeal-and-replace agenda, though they could delay an ACA repeal as long as four years.

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