Study: Young adults will pay more for insurance under health reform

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Young adults under the age of 30 will find their health insurance premiums rise by more than 40% under health care reform, according to two actuarial experts who have studied results of the Patient Protection and Affordable Care Act (PPACA).

Kurt Giesa

Kurt Giesa

Writing in the latest edition of Contingencies, a publication from the American Academy of Actuaries, authors Kurt Giesa and Chris Carlson found that even with government subsidies, young Americans will pay more for their health insurance – which nearly all Americans will be be required to purchase or otherwise obtain under PPACA – than if the law was not enacted.

Giesa is a partner, and Carlson a principal in the global management firm Oliver Wyman. Both are fellows of the Society of Actuaries.

Chris Carlson

Chris Carlson

The article finds that “young, single adults aged 21 to 29 and with incomes beginning at about 225% of the federal poverty level (FPL), or roughly $25,000, can expect to see higher premiums than would be the case absent the PPACA, even after accounting for the presence of the premium assistance.”

Similarly, the article finds that “single adults up to age 44 with incomes beginning above approximately 300% of FPL [about $33,500] can expect to see higher premiums, even after accounting for premium assistance.”

Trade group America’s Health Insurance Plans (AHIP) has raised concerns about the impact the PPACA’s age rating restrictions will have on the affordability of health care coverage.

In recent comments submitted to the U.S. Department of Health and Human Services, AHIP urged regulators to delay implementation of the 3:1 age band.

“Higher rates for the younger population combined with low mandate penalties during the first years of the PPACA implementation will result in adverse selection because younger individuals are likely to choose not to purchase coverage,” AHIP said in its comments. “When these younger individuals do not enroll, destabilization of the individual market will occur, premiums will increase in the individual market for enrollees of all ages, and enrollment will decline.

(Click here to read related story: State regulators address possible premium increases, abuse with PPACA)

Karen Ignagni

Karen Ignagni

AHIP provided support to Oliver Wyman for earlier actuarial modeling and analysis similar to that highlighted in the Contingencies article.

“If younger, healthier people choose to forgo purchasing insurance until they get sick or injured, costs will increase for everyone – young and old,” said AHIP President and CEO Karen Ignagni.

In their Contingencies article, Giesha and Carlson make the point that to understand the full impact of the PPACA on premiums, “it’s important to move beyond broad averages.”

They note that “averages may mask substantial differences in how market reforms will affect individual states and various populations in those states, particularly in the pricing of coverage and the pooling of risk.”

Key findings from the article include the following:

  • “In our study, we found that if premiums in the nongroup market were to increase on average by 10% to 20% because of changes required by the PPACA (as some estimates have predicted), premiums for younger, healthier individuals could increase by more than 40%.”
  • “Our analysis shows that under the PPACA, premiums for people aged 21 to 29 with single coverage who are not eligible for premium assistance would increase by 42% over premiums absent the PPACA. People aged 30 to 39 with single coverage who are not eligible for premium assistance would see an average increase in premiums of 31%. Those with single coverage aged 60 to 64 who are not eligible for premium assistance would see about a 1% average increase in premiums.”
  • “Our core finding is that young, single adults aged 21 to 29 and with incomes beginning at about 225% of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the PPACA, even after accounting for the presence of the premium assistance. Similarly, single adults up to age 44 with incomes beginning above approximately 300% of FPL can expect to see higher premiums, even after accounting for premium assistance. This is because in today’s market, younger enrollees can buy coverage that more closely reflects their expected actuarial costs based on their age, and this coverage is pooled with other similar risk classes in accordance with standard actuarial principles. In addition, the PPACA requires that all nongroup coverage meet essential health benefit requirements, both with respect to the type of services covered and with respect to the actuarial value of the coverage.”
  • “The difference between young and old at similar income levels is that younger individuals at a given income level are much less likely to find it economically rational to purchase coverage if it takes up 9.5% of their income, while older individuals have a greater expectation of health care cost spending as a percentage of income.”
  • “In total, this means that close to 4 million uninsured individuals aged 21 to 29—or roughly 36% of those currently uninsured within this age cohort (4 million/11.2 million)—can expect to pay more out of pocket for single coverage than they otherwise would, even given the availability of premium assistance.”
  • “Note that roughly 7.6 million people, or 40% of those covered in the nongroup market in 2011, had incomes above 400% of the FPL and would be ineligible for premium assistance. Taking into account both the 400% FPL phase-out level and the 225% FPL crossover point, we estimate that almost 80% of those ages 21 to 29 with incomes greater than 138% of FPL who are enrolled in nongroup single coverage can expect to pay more out of pocket for coverage than they pay today—even after accounting for premium assistance. With a crossover point of about 300% of FPL for those aged 30 to 44, we estimate that about one-third of those older than age 29 with incomes greater than 138% FPL who currently are insured with individual contracts will see higher premiums even after accounting for premium assistance.”

Click here to read the article.

 

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