Prior to the ACA, health insurers in the individual market used individual characteristics to set premiums, subject to state insurance laws and regula- tions. Thus, they typically used age, gender, location, and health status, among other factors. The ACA prohibited the use of preexisting health conditions, and it prohibited the use of gender to set rates. It also limited the extent to which age could be used; the highest premiums by age could be no more than three times as costly as the least expensive age. However, the ACA does allow up to 50 percent higher premiums for those who use tobacco products. It also requires guaranteed issue; this means that an insurer may not refuse to provide you coverage if you want to buy it.
Insurers have used these characteristics to set premiums that reflected the likely average claims experience of the group. As it turns out, on average women have higher claims experi- ence than men until about age 55. So, historically women have faced higher premiums than men. Similarly, those with a history of heart disease would typically pay more for coverage, if an insurer was willing to offer it.
These sorts of regulatory limits have impact only if they are at odds with actual utilization experience. Thus, if older people have actual claims experience five times that of younger people, a law such as the ACA, which sets a maximum premium for older people at no more than three times higher than for younger people, will cause premiums for younger people to be higher. Similarly, if women have higher claims experience, but may not be charged more than men, premiums for women will be relatively lower than prior to the ACA, and premiums will be higher for men. Women have an incentive to join plans, men have an incentive to forgo coverage.