Oliver Wyman study finds that premiums will increase 42 percent for people aged 21 to 29 and 31 percent for people aged 30 to 39
The latest edition of Contingencies, a publication from the American Academy of Actuaries, includes an article from actuaries at Oliver Wyman highlighting the impact of the Affordable Care Act’s (ACA) age rating restrictions on premiums. The article finds that “young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the ACA, even after accounting for the presence of the premium assistance.” Similarly, the article finds that “single adults up to age 44 with incomes beginning above approximately 300 percent of FPL can expect to see higher premiums, even after accounting for premium assistance.”
America’s Health Insurance Plans (AHIP) has raised concerns about the impact the ACA’s age rating restrictions will have on the affordability of health care coverage. In recent comments submitted to the U.S. Department of Health and Human Services, AHIP urged regulators to delay implementation of the 3:1 age band. “Higher rates for the younger population combined with low mandate penalties during the first years of the ACA implementation will result in adverse selection because younger individuals are likely to choose not to purchase coverage. When these younger individuals do not enroll, destabilization of the individual market will occur, premiums will increase in the individual market for enrollees of all ages, and enrollment will decline,” AHIP said in its comments. AHIP provided support to Oliver Wyman for earlier actuarial modeling and analysis similar to that highlighted in the Contingencies article.
“If younger, healthier people choose to forgo purchasing insurance until they get sick or injured, costs will increase for everyone – young and old,” said AHIP President and CEO Karen Ignagni.
The authors of the Contingencies article make the important point that to understand the full impact of the ACA on premiums, “it’s important to move beyond broad averages.” They note that “averages may mask substantial differences in how market reforms will affect individual states and various populations in those states, particularly in the pricing of coverage and the pooling of risk.” Key findings from the article include the following:
- “In our study, we found that if premiums in the nongroup 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.”
- “Our analysis shows that under the ACA, premiums for people aged 21 to 29 with single coverage who are not eligible for premium assistance would increase by 42 percent over premiums absent the ACA. People aged 30 to 39 with single coverage who are not eligible for premium assistance would see an average increase in premiums of 31 percent. Those with single coverage aged 60 to 64 who are not eligible for premium assistance would see about a 1 percent average increase in premiums.”
- “Our core finding is that young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the ACA, even after accounting for the presence of the premium assistance. Similarly, single adults up to age 44 with incomes beginning above approximately 300 percent of FPL can expect to see higher premiums, even after accounting for premium assistance. This is because in today’s market, younger enrollees can buy coverage that more closely reflects their expected actuarial costs based on their age, and this coverage is pooled with other similar risk classes in accordance with standard actuarial principles. In addition, the ACA requires that all nongroup coverage meet essential health benefit requirements, both with respect to the type of services covered and with respect to the actuarial value of the coverage.”
- “The difference between young and old at similar income levels is that younger individuals at a given income level are much less likely to find it economically rational to purchase coverage if it takes up 9.5 percent of their income, while older individuals have a greater expectation of health care cost spending as a percentage of income.”
- “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 (4 million/11.2 million)—can expect to pay more out of pocket for single coverage than they otherwise would, even given the availability of premium assistance.”
- “Note that roughly 7.6 million people, or 40 percent of those covered in the nongroup market in 2011, had incomes above 400 percent of the FPL and would be ineligible for premium assistance. Taking into account both the 400 percent FPL phase-out level and the 225 percent FPL crossover point, we estimate that almost 80 percent of those ages 21 to 29 with incomes greater than 138 percent of FPL who are enrolled in nongroup single coverage can expect to pay more out of pocket for coverage than they pay today—even after accounting for premium assistance. With a crossover point of about 300 percent of FPL for those aged 30 to 44, we estimate that about one-third of those older than age 29 with incomes greater than 138 percent FPL who currently are insured with individual contracts will see higher premiums even after accounting for premium assistance.”