Health Care Reform Will Increase Young Adult Premiums by 50% in 2014

Are you a young adult (age 18-25) and expecting (or hoping) that health care reform will reduce your health insurance costs in 2014?  The vast majority of all adults (young, middle-aged, or older) don’t realize that a little-known provision in the Patient Protection and Affordable Care Act (PPACA) does not make insurance “more affordable” for young adults; in fact, it makes it more expensive for people your age!  Sorry, I couldn’t resist the pun on the “…Affordable Care Act”.

How could that be?  Let me tell you!  The PPACA requires that the maximum ratio for the difference in premiums charged by insurers between the youngest and oldest adults is 3:1.  In other words, if the health insurance premium for a 21 year old is $150, the premium for a 64 year old (last year before Medicare eligibility) would be $450, or three times that of the 21 year old.  While that may sound OK, here’s the rub: claims experience for 64 year-olds runs about 5 times that of 21 year olds; that results in a ratio used by most carriers of 5:1.  That means that older folks (i.e. age 64) pay 5 times the premiums as those charged for 21 year olds.  So what will happen when carriers have to use the 3:1 rating ratio required by the new law?  Let me show you!

I happen to live in Meridian, Idaho, so I’ll show you using examples of individual policy rates for young and old folks from an Idaho health insurance carrier; in this case I’m using quoted rates on August 25, 2011 from one of the largest health insurance carrier in Idaho. The plan design is a PPO with a $1,000 annual deductible.  I obtained quoted rates for two males, ages 21 and 64.  Following are actual rates, as well as what I’ve calculated as hypothetical rates, if the carrier were subject to the 3:1 maximum premium ratio today

Age of Applicant

Monthly Premium*

Premium Ratio, Oldest to Youngest

21

$165.39

n/a

64

$837.77

5.06

Total Premiums Paid

$1,003.16

*Quotes obtained from EHealthInsurance website, 8/25/2011

Here are the illustrated, hypothetical rates, using the maximum ratio of 3:1 that will be required under the PPACA

Age of Applicant

Monthly Premium*

Premium Ratio, Oldest to Youngest

Percentage Change in Premiums Due to 3:1 ratio

21

$250.79

n/a

51% increase

64

$752.37

3.00

10% decrease

Total Premiums Paid

$1,003.16

If you don’t like the idea of a 51% increase over current rates, sorry but it actually gets worse.  Since this ratio of 3:1 is contrived and not reflective of real-world experience, for it to at least break-even (very wishful thinking), the enrollment ratio of younger to older folks will need to be the same age mix as pre-2014.  So, what are the odds of that happening?  If fewer young adults enroll (who by design are expected to subsidize older folks), then the risk and financing of the plan will be in major jeopardy.  How might this happen?  How’s this for plausible: In 2014 you’re 21 years old.  Your premium goes up by 51% and you research your options.  One of those is to drop coverage, and pay the individual penalty.  Simply put, the penalty you would pay in 2014 if you don’t enroll (or maintain coverage) would be the greater of 1% of “allowable income” or $95/month.  For this example, let’s assume that your penalty is $95/month.  Now, if you dis-enroll (terminate your coverage), you may be concerned about being able to re-enroll when (not if) you need it in the future; NO PROBLEM, since the law also requires carriers to cover all preexisting conditions for new enrollees.  So, what do you think many people your age will do? 

1.      Maintain coverage and pay 51% more (in this case, an illustrated premium in today’s dollars of $250/month); or

2.      Drop coverage, pay the $95/month, and reenroll when you get sick and need the coverage

If only a minority of 21 year-olds choose option 2, then the plan is definitely under-funded, as those young folks will not be paying the premiums that subsidize the older folks, because the older folks premiums are not adequate to cover their claims costs; they need you to remain covered!

If this is what you envisioned in health care reform, then congratulations; if not, then pass this along to all you think would like to know about this PPACA provision, which is but one of many “unintended consequences” of the law that “we have to pass…so that you can find out is in it…” (quote by the Speaker of the House, in a speech given 3-9-2010 at the 2010 Legislative Conference for the National Association of Counties).

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Tony Kahmann, Benefits Utilization Consultant
Waldo Agencies
3081 S. Conda Ave.
Meridian ID 83642
208-405-5820 Cell (primary)
888-509-5433 Nyssa Office
tkahmann@waldoagencies.com

“Delivering outside-the-box solutions in health risk & productivity management"

Posted via email from Waldo Enterprise Client Group

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