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Wednesday, June 05, 2013

Who might suffer "rate shock" under the Affordable Care Act?

Avik Roy's much-debated screed implying that the launching of the ACA exchanges will trigger widespread "rate shock" among legions of healthy young people who could previously by insurance more cheaply relies on misleading comparisons, as Ezra Klein, Jonathan Cohn and Rick Ungar charged. None deny, though, that the price of the most minimal available insurance will rise for a subset of healthy young adults

In an essay suggesting that rate shock is real, Will WIlkinson recounts that for a brief time a year or so ago he was paying about $100 a month for a catastrophic plan that he found through the Freelancer's Union (presumably a more honest broker than the scammy online broker Roy relied on).

I clicked through and tried the union's plan-finder with random zip codes in the northeast, south and west; it wasn't until  my fifth try that I found a zip code -- 27108, in Winston-Salem, NC -- in which a UnitedHealth quote was available. If I were my 22 year-old son, I could get a plan for $79 a month with a $10,000 deductible and 70% of expenses paid after that, with a total out-of-pocket expense cap of $15,000 (except that if I were my son I couldn't, because he had hip labral surgery this year, which would doubtless jack up his rate if he were searching now -- see Ezra Klein on this.) For $105 per month, I (or 22-me) can get the same deal with a $5,000 deductible and $10,000 annual cap on my out-of-pocket expenses. (Of course, that's a posted plan from just one provider in one market, and comparing ACA offerings to the current individual market is not just comparing apples to oranges, but 50 different fruits to hundreds of other different fruits. But the offering is roughly in line with what Roy found on eHealthInsurance.com)

Under the ACA, an adult under 30 can buy a catastrophic plan without benefit of subsidy. Covered California, the state administrator of the exchanges, estimates that this plan will cost a 22 year-old an average of $136 per month (variable by region), with a $6,400 deductible that also constitutes the yearly cap on out-of-pocket costs. That's a higher premium than UnitedHealth's cheapest plans in NC, but not dramatically so, and only higher for those with no preexisting conditions.  The same 22 year old could buy a bronze plan in CA at an unsubsidized cost if $208 a month (according to this Kaiser Health rate calculator) that would cover essential benefits with moderate co-pays, with yearly out-of-pocket expenses capped at approximately the same level as the catastrophic deductible, $6400. If he earned $25,000 per year, however -- the national median for an adult his age -- the subsidy for a bronze plan would bring his monthly payment down to $98 (as Jonathan Cohn pointed out today).

How many young adults may end up paying more (generally for better coverage) under the ACA than they now pay in the individual market, or than they would if they are uninsured now and were forced to buy coverage under the existing system?  There are approximately 20.7 million uninsured adults aged 21-39 in the US, according to Oliver Wyman, as cited in a much-quoted Barrie + Hibbert paper by actuaries Kurt Geisa and Chris Carlson forecasting large premium hikes for young adults (for admittedly better coverage than that now offered on the nongroup market). Of those, approximately 5.8 million should pay more -- again, for better coverage -- than they would if they bought in the current market, if the authors' assumptions are correct.

According to Geisa and Carlson,  insurance will become more expensive for 21-29 year-olds who earn more than 225% of the Federal Poverty Level (FPL), and more expensive for 30-39 year-olds who earn more than 300% FPL.  In 2011, there were 1.06 million adults aged 21-29 earning more than 200% FPL who bought insurance in the nongroup market.  Coincidentally, the median income nationally for 25 year-olds, $25,000, is 215% FPL, according to the Kaiser calculator. If that calculator proves right, young adults at 225% FPL, or roughly median income, will pay approximately the same monthly fee for a bronze plan in the Covered CA exchange as a young man with no pre-existing conditions will pay as of now for a far inferior catastrophic plan.  That roughly checks out with Geisa and Carlson's 225% cutoff point for those who will pay more under the ACA.  One important data point not available to Geisa and Carlson, however, is Covered California's estimate of the cost of a catastrophic plan -- $134 per month, as noted above.

According to Geisa and Carlson, adults aged 30-44 will pay more for insurance in the ACA than they do now if their income exceeds 300% FPL. In 2011 there were, according to the Wyman figures they cite, about 1.7 million adults aged 30-39 with incomes over 300% FPL in the non-group market, and another 1.9 million aged 40-49. Let's say half of them, 1.05 million, were 44 or under. Altogether, then, in 2011, there were a bit shy of 4 million adults aged 21-44 who could pay more for insurance under the ACA than they were paying in the non-group market.

As for the uninsured: in 2011 there were 11.5 million aged 21-29 and 9.6 million aged 30-39.  Of the 21-29 cohort, 3.9 million earned more than the 225% FPL cutoff, and of the 30-39 year olds, 1.9 million earned more than the 300% FPL cutoff for that age group. In total, then, 5.8 million out of 20.7 million could pay more than they would in today's pre-ACA-exchange market.

But how many will -- and for how many would paying a higher premium be a negative? Keep in mind that a) a growing number of those under 26 are insuring under their parents' plans, as the ACA enables; b) some portion of those above Geisa and Carlson's income cutoffs -- I wish I knew how large -- today pay considerably more than the lowest rates, and some can't buy insurance at all; c) bronze plans in the exchanges are superior to catastrophic plans, which pay nothing until the high deductible is met and have higher total yearly out-of-pocket caps (I suspect that one accident requiring an overnight hospital stay is about as likely to hit the cap as the cost of a fender-bender is likely to hit three digits at the auto body shop); d) low-cost catastrophic plans are not available everywhere in today's market; e) for adults under 30, catastrophic plans will be available in the exchanges, albeit at rates somewhat higher than the lowest available to some now;  and f) Geisa and Carlson's cost estimates for plans offered in the ACA exchanges may prove too high, at least for states that make some effort to make the system work.

At worst, in any case, about two sevenths of adults aged 21-39 not insured by their employers or their parents or Medicaid will pay more for insurance superior to what they can now buy than they would pay if they could buy insurance at the lowest available prices (or close to them) today.

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