Two fundamental policy goals of the Patient Protection and Affordable Care Act reforms of the individual health insurance market are improving the spread of risk – the essential risk pooling element of any form of insurance – and affordability. Each complements the other. Having more affordable forms of individual coverage brings more people into the risk pool. That in turn improves the spread of risk. Better spread of risk means health plan issuers can set premium rates lower because there are more premium dollars being paid in to cover the costs of those who need medical care. A virtuous cycle in economic terms.
Four years after most of the reforms began to take effect, it remains unclear if these two policy goals will be achieved, with strains appearing at both ends of the age continuum of working adults not covered by employer sponsored health plans. At the lower end are the so-called “young invincibles” who as this Heath Affairs Blog post posits are opting not to purchase coverage. Its authors suggest the Affordable Care Act’s age rating rules designed to make coverage more affordable for older adults deter young adults – who may not see the need — from enrolling in coverage.
That has frustrated the policy goal of achieving greater spread of risk by shifting the risk pool toward older adults, the authors write, reinforced by the law’s bar on medical underwriting that previously kept these older adults who tend to use more medical services out of the pool. Consequently, they note, the risk pool faces the danger of adverse selection, with a surplus of older adults who consume more medical care and too few younger adults who tend to use less.
But despite the age rating rules that stipulate that the relative weight of age in setting premium rates cannot exceed a three to one ratio between the oldest and youngest adults in the pool, older adults with household incomes exceeding 400 percent of federal poverty and thus ineligible for premium tax credits for coverage sold on state health benefit exchanges are facing an affordability crisis. Shela Bryan, a 63-year-old maintenance supervisor from Hull, Georgia, is a typical example. She’s shopping for coverage for 2017 and told Kaiser Health News:
“They cost a thousand, $1,200 [a month], and they have a deductible of $6,000,” she said. “I don’t know how they think anyone can afford that.”
There also a very real perception of poor value at work here that can deter older consumers from purchasing coverage. High deductible plans shift what’s known in insurance terminology as “first dollar” or “burning layer” risk to insureds. Consumers in age rating bands of 55 and older naturally wonder why they are being asked to pay so much for what is essentially catastrophic coverage. Particularly older adults who are relatively healthy and are committed to leading healthy lifestyles, knowing they are not bulletproof 29-year-olds anymore. Unlike other forms of insurance where an insured can earn lower premiums and discounts for mitigating risk, the Affordable Care Act prohibits use of such incentives that could improve the individual risk pool.
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