Will the Affordable Care Act be Unaffordable for Young People?



Health Insurance for Young People

Will young people pay more for health insurance under the Affordable Care Act (ACA) than they do today?  It depends on who you ask.  It also depends on how you look at the balance of cost and service.

Today, an older individual pays more for their health insurance than does a younger person.   This is because older people have more medical expenses.

The difference in cost can be significant.  As much as 5 to 1.

The ACA will still allow insurance carriers to charge older individuals more for their health insurance.  However, the cost difference will be significantly less.   As a result, premiums will go up for younger individuals and down for those who are older.

This change has raised concern that the increased cost for young people will discourage them from buying insurance.

In the January / February 2013 issue of the American Academy of Actuaries publication, Contingencies, two actuaries from the actuarial firm Oliver Wyman studied the impact of this change.  They looked at how much premiums will rise under the ACA for people aged 21 to 29 who do not receive premium assistance from the Federal government.  (The Federal government provides premium assistance to help individuals below 400% of the Federal Poverty Level (FPL) pay for their insurance.)

The study concluded individuals in this age category will see about a 42% increase in their premiums.  For people age 30 to 39, the increase will by 31%.

According to the analysis, even individuals receiving premium assistance will pay more than they do today.  They place the crossover point at about 225% of the FPL. In other words, only individuals who make less than 225% FPL will actually see savings with premium assistance.

Based on this analysis, the authors concluded 80% of people age 21 to 29 will pay more under health care reform.

The National Association of Insurance Commissioners (the chief insurance regulators at the State level) has urged the Federal government to allow States the flexibility to phase the rate band change in over time.  This approach, they explain, will reduce the rate shock younger individuals will experience.

However, not everyone agrees there will be a rate shock.

The Urban Institute, in a March 2013 report, concluded the change in the age bands will have very little impact on the vast majority of younger individuals once you take premium assistance into account.

They agree rates will go up for those aged 21 to 27.

However, they contend that, with premium assistance, the impact on individuals earning under 300% of the FPL is not significant.  Since ninety-two percent of young adults between the ages of 21 and 27 make less than 300% of the FPL, they argue most will not feel the effects of the change.

The Urban Institute goes on to say the change in age bands better reflects actual cost for those under age 27 and over age 41.  However, this is generally not the case for individuals between the ages of 28 and 41.

Many policies sold in the market today offer less coverage than will be provided under the ACA.  The impact of richer benefits under the ACA will further increase premiums.  According to one estimate, the richer benefits under the ACA will increase premiums an average of 6%.  For people on some plans, the increase will be considerably more.

Young adults are the most likely group to be uninsured.  In Colorado, the percentage is 28.5, according to the Colorado Health Institute.  Of this number, 77% say cost is the reason they don’t have insurance.

Premium assistance eliminates the concern over what the premium is.  A person’s income determines what they pay.

For example, an individual making $22,980 (200% of FPL) will pay $1,447 annually after premium assistance is applied.  But this is still a significant amount of money for someone earning $22,980 and it is uncertain as to whether even this amount is affordable.

There is evidence to support this concern regarding affordability.

Today, a young person can get health coverage for around $1,400 in certain markets, such as Colorado.  These policies do not provide the same level of coverage as the ACA plans.  Therefore, when you consider the combination of cost and coverage, the ACA plans offer superior value.  But they are not more affordable.

For young people, the amount they pay for coverage is often the key driver as to whether or not they have insurance.

If a younger individual can buy insurance today for the same amount they would pay under the ACA, it begs the question; will they buy insurance even with premium assistance?  If they don’t, premiums will go up for the rest of us.

Want to learn more about affordable health care reform options, especially if you’re young? Our health care reform site can help.