The Patient Protection and Affordable Care Act seeks to achieve a better spread of risk in state individual health insurance markets by requiring heath plan issuers to accept all applicants for coverage without medical underwriting and treating all enrolled individuals as part of a single statewide risk pool effective January 1, 2014. In addition, the law bars individuals from “going bare” without any form of health coverage under pain of a tax penalty. This provision is largely aimed at young adults who aren’t covered under their parents’ plans and are less likely than older people to incur high medical treatment costs. To broaden the pool to include them, the ACA also imposes a flatter premium pricing structure so that older individuals can be charged a maximum of three times the rate charged young people.
Policy wonks worry too few young adults will enroll in coverage, leading to an actuarially unsustainable risk pool overly populated by higher cost older individuals. Those concerns are underscored by early reports on state health benefit exchange enrollment such as this Wall Street Journal item indicating initial exchange enrollees tend to be older. While the WSJ story characterizes the trend as unexpected, I think it’s entirely expected since the greatest pent up demand likely exists among older individuals not yet eligible for Medicare and who have gone without coverage – in many instances for years – due to unaffordable premiums or rejection by health plans based on their health histories.
Socio-economic factors are also likely to initially hinder the goal of getting sufficient numbers of so-called “young invincibles” into state risk pools to better balance out risk for plan issuers. The vast majority of working age Americans continues to equate health coverage with employment. This is probably even more the case with young adults more dependent on employment income than older adults who have more education and work experience and thus in a better position to sustain themselves though self-employment. Over the short term, going without coverage while seeking a job with health benefits (and paying the modest $95 first year tax penalty) may factor as a rational financial calculation for many unemployed young adults, particularly when money is tight and there’s little to pay for individual health coverage.
Need a speaker or webinar presenter on the Affordable Care Act and the outlook for health care reform? Contact Pilot Healthcare Strategies Principal Fred Pilot by email