Tag Archive: young invincibles

Non-group segment clouded in uncertainty amid questions of market and actuarial sustainability

Four years after the start of open enrollment under the Patient Protection and Affordable Care Act’s reformation of the non-group medical insurance market, the market’s future is clouded in uncertainty. The biggest questions are whether it can sustain itself as a market and as a functional risk pool.

First the market. Alarm bells are being sounded that that the segment will undergo buy side market failure as households with incomes exceeding 400 percent of federal poverty levels that don’t qualify for premium subsidies on state health benefit exchanges will no longer be able to keep up with large premium rate increases. This is complicated by the fact that these households perceive low value in high deductible plans that have become commonplace. Their expectations of fair value are under assault by high premiums for high deductible plans. The expectation is high premiums should have an inverse relationship with out of pocket costs such as deductibles and co-insurance as they historically have. That’s no longer the case.

Many of these 401 percenters ineligible for premium assistance have income tax incentives to continue to purchase non-group plans. For all of them, there is the stick of the tax penalty for going without coverage. For the many that are self-employed, there is the carrot of being able to deduct premiums from taxable income on their Form 1040. Both of these incentives however can only go so far if premium costs are unaffordable. The perception of poor value due to high plan deductibles might be enough to push a vacillating 401 percent plus household to make the decision to go without coverage and pay the tax penalty instead. Particularly if that self-employed household has dependent children or is comprised of adults over age 50. Premiums hit these households particularly hard since household size and age are two key premium rating factors in the non-group market.

The out migration of the 401 percenters combined with the reluctance of under 30 “young invincibles” to purchase a plan and instead pay the tax penalty would shrink and distort the non-group risk pool, calling into question its actuarial sustainability. The primary members would be adults aged 30-50 and a declining number of those over age 50 who are high utilizers of medical care eligible for premium subsidies though the exchanges or willing and able to pay rising premiums in the off-exchange market. With these populations, there may not be enough people in the pool to achieve a sufficient spread of risk among high and low utilizers to keep the segment from falling into adverse selection, further accelerating premium rate hikes.

The aversion of the young invincibles to comprehensive standard non-group plans would be reinforced under a Trump administration that’s exploring relaxing the rules governing short term “gap” policies. That liberalization would create a large degree of parity between short term and standard non-group plans. Both would have annual terms and be renewable. That would shrink the individual risk pool by providing a lower cost replacement for non-group plans for young adults and those who use little medical care, even when tax penalties for lacking comprehensive coverage are taken into account.

In sum, these factors leave the non-group market segment vulnerable to a relatively rapid unwinding over the next three or so years.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

House reconciliation measure aims at getting young invincibles into individual risk pool

To help stabilize the individual medical insurance market, a critical provision of the House budget reconciliation measure concentrates its carrots and sticks on the so-called young invincibles aged 30 and younger to encourage them to get into state risk pools. First the carrot. It would allow individual (and small group) medical plans issuers to charge most senior members up to five times more than the most junior versus the current limitation of three times. That would reduce premiums paid by younger members. The stick? A 30 percent surcharge on premiums if a member has not maintained continuous medical coverage when they apply. Sign up late, pay extra.

If enacted, it will take some time to determine whether these two mechanisms will ensure the actuarial viability of the individual segment, the most fraught of the two plan types. Health plan issuers have complained that the individual risk pool is imbalanced with too many people over age 50 as well as an excess of those in poor health and utilizing a lot of medical care. A continuous enrollment incentive would theoretically get younger and presumably healthier and lower utilizing people into the risk pool.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Greater than expected staying power of employer-sponsored health coverage could jeopardize viability of post-ACA individual market

There are three basic explanations being offered up by individual health plan issuers on the eve of plan year 2017 open enrollment to justify sharply increased premiums in many states:

  1. Most of the Patient Protection and Affordable Care Act premium stabilization programs are expiring in 2017 and money is still owned plans under one of the expiring mechanisms designed to even out a given health plan issuer’s loss experience with that of other issuers;
  1. Plan issuers have more extensive loss experience data than in the initial years of the individual market segment as the Affordable Care Act reforms kicked in and it was harder to estimate what to charge;
  1. Closely related is the previous point, loss data indicates statewide individual risk pools are posting higher than expected medical utilization, with even higher utilization among plans sold on state health benefit exchanges. Premiums are thus being aligned to reflect the true quality and loss experience of the statewide risk pools.

The third point describes a dynamic situation that could change over time. For example, if medical utilization decreases and the health risk profiles of those in the individual market improve, premiums could readjust downward to reflect that more favorable environment.

However, a more long term concern that should be troubling for health policymakers voiced within some quarters of the health insurance industry is the state risk pools are unbalanced. Or to use an insurance industry term, adversely selected and skewed toward those more prone to using a lot of medical care with too few folks in the pool who use less. Those are actuarially assumed to be the so-called “young invincibles” in their twenties and thirties.

This is a larger concern because it could reflect a more long term, structural problem in the individual market as a whole. If the pool remains unbalanced, premium rates are likely to remain elevated since there are fewer premium dollars flowing into the pool from those who use less medical care to offset the expenses of higher utilizers. The longer premiums remain elevated, the greater the risk to the viability of the individual market as a whole since adverse selection tends to perpetuate an unvirtuous cycle of more people abandoning the market as premiums increase, reinforcing the need for additional premium hikes. This was the situation that existed prior to the Affordable Care Act’s 2010 enactment. Even in populous states like California, where accounts of premium increases of nearly 40 percent and an individual market poised to enter the terminal “death spiral” phase of adverse selection tipped the political scales to assure the needed votes in Congress for the law’s approval.

One of the assumptions of the Affordable Care Act’s individual market reforms is that by making individual coverage more like employer-sponsored coverage with minimum benefit requirements, annual enrollment periods and no medical underwriting, employer-sponsored coverage among smaller organizations would decline. It hasn’t turned out that way. The greater than expected staying power of employer-sponsored health coverage could reinforce an ongoing structural imbalance in the individual market, particularly in smaller states where by definition the risk pool is naturally limited.

The reason is the twenty and thirty somethings health plan issuers say they need to help achieve a good spread of risk for a balanced pool are more likely to be covered in employer sponsored plans than people age 50 and older  — and therefore not participating in the individual market. They are beginning their careers and more likely to be employed full time and whereas the latter age cohort is more likely to be retired, semi-retired, self-employed, and otherwise not employed full time by an employer offering health benefits.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

Health plans concerned ACA’s age rating rule could spawn adverse selection

Health plans worry the limitation on using age as a basis for setting premiums in the individual health insurance market come January 2014 could jeopardize its financial viability and lead to adverse risk selection the Patient Protection and Affordable Care Act is intended to alleviate.

The ACA requires individual health insurers to deemphasize age as a rating factor by reducing the current five or six age rating bands currently used to a maximum of three, meaning the oldest plan members would pay premium rates not exceeding triple those of the youngest.  The goal under the ACA’s modified community-based rating scheme is to flatten out premiums to make them more affordable to middle aged people who over the past several years have seen them rise to a level rivaling the amount of a modest mortgage payment.

According to this Washington Post article, while older people would enjoy lower rates, younger people would consequently experience rate increases.  Particularly those under age 30 that modified community-based rating envisions balancing out state risk pools by bringing in a typically healthier population with lower medical utilization.

The Post article contains contrasting analyses on the how this so-called “young invincible” demographic will respond to higher premiums.  Consulting firm Oliver Wyman – which the article notes has been retained by the health plans’ dominant trade association – predicts the age rating limitation will result in 80 percent of those in their 20s paying more for tax subsidized coverage purchased through state health benefit exchanges than they now pay for even basic, low cost coverage.  But economist Jonathan Gruber – who consulted in the drafting of the ACA – expects plans sold on the exchanges notwithstanding higher premium rates will appeal to this cohort when income tax credits to offset premiums are taken into account. More so than going bare and paying a penalty — and even more than low cost, high deductible catastrophic plans available only to those under age 30.

Which prognostication ends up being more on target won’t be known until plan issuers release premium information this summer and the exchanges gear up for open enrollment in the fall for coverage effective in January 2014.


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 fpilot@pilothealthstrategies.com or call 530-295-1473. 

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