The cost of health insurance premiums for young, healthy Americans have increased significantly under the Affordable Care Act (ACA), also known as Obamacare, at the close of the law’s second open-enrollment period, according to a recent analysis from The Heritage Foundation.
Researchers at Heritage found non-group health insurance premiums paid by millennials increased on average 5.3 percent from 2014 to 2015, which is in line with what analysts expected. For the nation’s 27-year-olds, premiums shot up by 8.46 percent.
Millennials in some states were hit with double-digit increases. In Alaska, young enrollees in Obamacare saw their premiums increase 28 percent, from $216.12 per month in 2014 to $235.57 in 2015. This is comparable with the 28 percent increase among 50-year-old Alaskans and the 24 percent increase for family rates.
Other states with insurance spikes for millennials are Kansas (17.8 percent), Louisiana (17.22 percent), Minnesota (19.2 percent), North Carolina (15.6 percent), Ohio (19 percent), Pennsylvania (18 percent), Tennessee (18 percent), and Virginia (15 percent).
Community Rating Cited As Cause
Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says ACA has a mandate of community rating, which means the young and healthy pay more for insurance than they would in a free market.
“Premium prices for those aged 18–34 went up compared to pre-ACA pricing,” Stark said.
“The individual mandate theoretically forces young adults into the insurance pool [at higher prices], yet many young people are going without insurance and paying the fine or tax,” Stark said.
‘Fair’ and Expensive Premiums
Merrill Matthews, a resident scholar with the Institute for Policy Innovation, says every pro-liberty health policy expert had tried to explain to the Democrats writing Obamacare “modified community rating”—in which the government prohibits insurers from pricing health insurance based on an applicant’s risk factors, allowing only some variation based on age and geography—would drive up the cost of health insurance for younger and healthier people.
“Democrats refused to listen—well, almost [completely],” Matthews said.
The Senate version of Obamacare, the version that actually became the law, permitted only a three-to-one spread in premiums, meaning the most expensive premium could only be three times higher than the least expensive, Matthews says. Actuaries say the spread should be more like five-to-one or seven-to-one.
Matthews says the House version allowed only a two-to-one spread, which would have made health insurance even more expensive for young people.
“And so premiums are going up for younger people, even though much of the cost is hidden by federal subsidies,” said Matthews. “And it will likely only get worse as the [nation’s] population ages.”
In an attempt to make premiums “fair,” reducing the normally wide variation in premiums, young people, who would normally have very low premiums, have to pay significantly more.
Required to Overcharge Young
The price of premiums under Obamacare has always been a guessing game, says Greg Scandlen, founder and director of Consumers for Health Care Choices and a senior fellow at The Heartland Institute, which publishes Health Care News.
Insurers have no idea what kind of risks are enrolling each year because they are not allowed to ask basic health questions, Scandlen says. Without knowing the risks they are attracting, insurers cannot know how much to charge.
This problem was eased somewhat under Obamacare’s reinsurance risk corridors and risk adjustment programs that subsidized companies that lost money over the first three years. But those programs simply allowed companies to underprice their policies, Scandlen says. Those subsidies will soon no longer be available. Two of them expire in 2016 and the third continues indefinitely, so insurers will have to get more serious about pricing.
There is an even more important issue in play as well, Scandlen says: Obamacare required insurers to overcharge young people to subsidize older people.
‘Fundamental Contradiction’ in ACA
Proponents of ACA claimed insuring younger people was one of the most important reasons to support the law, says Scandlen.
“Most of the uninsured have always been under age 30,” Scandlen says. “So there is a fundamental contradiction: Health plans are required to overcharge the very people they most want to attract.”
The policy wonks in Washington, DC tried to square this circle by punishing people who failed to enroll and providing subsidies to many who do enroll, but these carrots and sticks are extremely hard to administer, Scandlen says.
“Most of the people who received subsidies are now having to pay back some of the money they got, and the penalties apply only to those who get tax refunds,” Scandlen said.
“The more complicated this all gets, the more likely young people are to just ignore the whole thing,” Scandlen said. “Most of them don’t think they need health insurance in the first place, so they are not motivated to work through all the complications.”
Sean Parnell ([email protected]) is a policy advisor to The Heartland Institute and president of Impact Policy Management, LLC.
Drew Gonshorowski, “2015 ACA-Exchange-Premiums Update: Premiums Still Rising,” Issue Brief #4366, The Heritage Foundation, March 20, 2015: https://www.heartland.org/publications-resources/publications/2015-aca-exchange-premiums-update-premiums-still-rising