Premium subsidies will do little to defray increased rates for young people, while penalties for noncompliance appear paltry when compared to the costs associated with coverage.
A cost-benefit analysis reveals that the cost of purchasing subsidized insurance is up to 10 times greater for this population than the cost of the mandate penalty.
Premium spiral may be eminent, as many will find it financially advantageous to forego coverage, potentially limiting the actual number of “young invincibles” entering the exchange system to well below the administration’s goal of 2.7 million.
The Obama Administration estimates they need the participation of nearly 2.7 million 18-35 year olds in order for state-level health insurance exchanges set up by the Affordable Care Act (ACA) to work as intended.
The enrollment of these low cost young adults, a group commonly referred to as “young invincibles,” is essential, as they are required to subsidize the costs of insuring the elderly and chronically ill.
The term “young invincible” is a health policy buzzword used to describe young, generally healthy individuals who remain uninsured due to optimism bias: the perception that insurance is not a sensible investment since they are unlikely to need expensive medical treatment.
Studies have also shown that a portion of this young, uninsured population cannot afford insurance at pre-Affordable Care Act rates.
Whatever the cause, convincing this previously uninsured group of individuals to enroll in insurance plans is critical to the success and stability of the exchanges.
Given their youth, health status, and average income, this demographic is most likely to be attracted to plans offering basic coverage with affordable premiums that, under the exchange regulations, will require greater cost-sharing and perhaps cover more limited networks and services.
Under the Affordable Care Act, the plans offering the lowest acceptable coverage (with an actuarial value of 60-70 percent) are categorized as bronze plans.
However, a comparison of the monthly premium for the least expensive bronze plan offered in each state-level exchange to the least expensive plan offered in 2013 reveals that premium rates are set to increase exponentially in 2014 under the exchange system, with a 30 year old single person expecting an average premium increase of 260 percent.
The catalysts for these excessively large increases include guaranteed issue and community rating, amongst other ACA provisions.
Prior state-level experiences reveal that guaranteed issue and community rating policies can result in a market-destabilizing phenomenon known as premium spiral.
Premium spiral begins when guaranteed issue and community rating policies raise premiums, particularly for the young, who cross-subsidize high-risk beneficiaries.
In response to rising costs, young healthy enrollees opt out of coverage, seeing the investment as financially disadvantageous given their low medical costs. The insurance risk pool becomes disproportionately older and sicker, further increasing prices and driving insurers out until the system becomes unsustainable.
In order to avoid this “death spiral,” the Obama Administration put the individual mandate in place.
The financial mechanisms meant to encourage enrollment, low-income subsidies and noncompliance penalties, however, seem unlikely to entice “young invincibles” into the exchange system.
Utilizing a cost-benefit analysis to compare the costs of the increased bronze level premiums net any subsidies to the costs of the penalties, it becomes clear that in the majority of instances, the cost of bronze level insurance far exceed the costs of the penalties, except for those with incomes 133% of the federal poverty level.
Despite cost-defraying subsidies, the combination of costly premiums and ineffective penalties for noncompliance will likely keep many “young invincibles” from enrolling in the exchanges, and could result in a form of premium spiral.
http://americanactionforum.org/research/premium-increases-for-young-invincibles-under-the-aca-and-the-impending
A cost-benefit analysis reveals that the cost of purchasing subsidized insurance is up to 10 times greater for this population than the cost of the mandate penalty.
Premium spiral may be eminent, as many will find it financially advantageous to forego coverage, potentially limiting the actual number of “young invincibles” entering the exchange system to well below the administration’s goal of 2.7 million.
The Obama Administration estimates they need the participation of nearly 2.7 million 18-35 year olds in order for state-level health insurance exchanges set up by the Affordable Care Act (ACA) to work as intended.
The enrollment of these low cost young adults, a group commonly referred to as “young invincibles,” is essential, as they are required to subsidize the costs of insuring the elderly and chronically ill.
The term “young invincible” is a health policy buzzword used to describe young, generally healthy individuals who remain uninsured due to optimism bias: the perception that insurance is not a sensible investment since they are unlikely to need expensive medical treatment.
Studies have also shown that a portion of this young, uninsured population cannot afford insurance at pre-Affordable Care Act rates.
Whatever the cause, convincing this previously uninsured group of individuals to enroll in insurance plans is critical to the success and stability of the exchanges.
Given their youth, health status, and average income, this demographic is most likely to be attracted to plans offering basic coverage with affordable premiums that, under the exchange regulations, will require greater cost-sharing and perhaps cover more limited networks and services.
Under the Affordable Care Act, the plans offering the lowest acceptable coverage (with an actuarial value of 60-70 percent) are categorized as bronze plans.
However, a comparison of the monthly premium for the least expensive bronze plan offered in each state-level exchange to the least expensive plan offered in 2013 reveals that premium rates are set to increase exponentially in 2014 under the exchange system, with a 30 year old single person expecting an average premium increase of 260 percent.
The catalysts for these excessively large increases include guaranteed issue and community rating, amongst other ACA provisions.
Prior state-level experiences reveal that guaranteed issue and community rating policies can result in a market-destabilizing phenomenon known as premium spiral.
Premium spiral begins when guaranteed issue and community rating policies raise premiums, particularly for the young, who cross-subsidize high-risk beneficiaries.
In response to rising costs, young healthy enrollees opt out of coverage, seeing the investment as financially disadvantageous given their low medical costs. The insurance risk pool becomes disproportionately older and sicker, further increasing prices and driving insurers out until the system becomes unsustainable.
In order to avoid this “death spiral,” the Obama Administration put the individual mandate in place.
The financial mechanisms meant to encourage enrollment, low-income subsidies and noncompliance penalties, however, seem unlikely to entice “young invincibles” into the exchange system.
Utilizing a cost-benefit analysis to compare the costs of the increased bronze level premiums net any subsidies to the costs of the penalties, it becomes clear that in the majority of instances, the cost of bronze level insurance far exceed the costs of the penalties, except for those with incomes 133% of the federal poverty level.
Despite cost-defraying subsidies, the combination of costly premiums and ineffective penalties for noncompliance will likely keep many “young invincibles” from enrolling in the exchanges, and could result in a form of premium spiral.
http://americanactionforum.org/research/premium-increases-for-young-invincibles-under-the-aca-and-the-impending
