A new study from global actuary firm Oliver Wyman finds young, healthy individuals are likely to be charged higher premiums under President Obama’s health law.
According to the analysis, “young, single adults aged 21 to 29” with annual income roughly of $25,000 “can expect to see higher premiums,” with some seeing significant increases due to restrictions placed on insurers.
The analysis, featured in the latest edition of Contingencies, published by the American Academy of Actuaries, also found many single coverage adults up to age 44 with incomes at 300 percent of the Federal Poverty Level, or $33,510 for an individual, will see rate increases, too.
“In our study, we found that if premiums in the nongroup (individual) market were to increase on average by 10 percent to 20 percent because of changes required by the ACA (as some estimates have predicted), premiums for younger, healthier individuals could increase by more than 40 percent,” researchers Kurt Giesa and Chris Carlson write.
“In total, this means that close to 4 million uninsured individuals aged 21 to 29—or roughly 36 percent of those currently uninsured within this age cohort—can expect to pay more out of pocket for single coverage than they otherwise would, even given the availability of premium assistance,” the study notes.
In addition to their effect on individuals, the price spikes will damage the overall system, the authors note.
“At the health system level, it may cause an increase in risk pools between those with immediate health care needs and those seeking protection against unforeseen future risks,” the article notes.
Age Rating Restrictions at Issue
The meat of the matter is the ACA’s age rating restrictions on premiums. Age rating effectively limits how much premiums can vary based on a person’s age, meaning insurers can no longer charge older individuals proportionately higher rates than younger people. Obama’s law caps the ratio at 3 to 1.
The problem, according to the report and critics of age band compression is the unintended consequences of the limitations on the entire health system, says Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.
“It increases the likelihood they [younger adults] simply will not buy coverage until they need it, raising the costs for everybody else,” said Zirkelbach.
Ultimately, Zirkelbach said, key provisions in the Patient Protection and Affordable Care Act undercut the “affordable” portion of the controversial law, hitting the health care system with higher premiums for young people and providing a powerful incentive for the healthiest Americans to not sign up for insurance at all.
Big Premium Hikes
The Oliver Wyman analysis shows that under the ACA, single coverage premiums for people aged 21 to 29 who are not eligible for premium assistance or government subsidies would increase by 42 percent over insurance costs “absent the ACA.” People aged 30 to 39, in the same single coverage category, would see an increase of 31 percent. Individually insured people aged 60 to 64 who do not receive subsidies would pay about 1 percent more.
Several state insurance commissions have expressed concern the exchange and subsidies model may not work out as well as the federal government expects. Provisions such as age rating could cut into those projections, says J. P. Wieske, public information officer and legislative liaison for the Wisconsin Office of the Commissioner of Insurance.
“At first we have to take a look at who the uninsured in fact are before we can make that blanket claim how this law will positively impact health insurance,” said Wieske. He explained this is one reason Republican Gov. Scott Walker has opted Wisconsin out of creating a state insurance exchange, instead leaving the implementation to the federal government.
“When you look at the state’s risk pool, the state’s relatively low uninsured rate, and the underpinning reasons why people are uninsured in Wisconsin,” the insurance commissioner’s office is “not so sure the solution [the federal government] came up with solves the actual problem. The main problem everyone saw was affordability,” Wieske said
M. D. Kittle ([email protected]) writes for the Wisconsin Reporter.
“Age Band Compression Under Health Care Reform,” Kurt Giesa and Chris Carlson, Contingencies: http://www.contingenciesonline.com/contingenciesonline/20130102#pg33