Saturday, July 09, 2016

Selling health insurance to young adults is inherently hard

Among the troubling aspects of the performance of the ACA private plan marketplace to date, the age distribution looms large. HHS officials hoped that 40% of enrollees would be in the 18-34 age range; they got 28%. The overall enrollee population in the marketplace is sicker than anticipated, leading to losses for most insurers and a sharp upward adjustment in premiums.

Some observers have argued that the ACA's subsidy structure is to blame. Jed Graham, for example, in his e-book Obamacare is a Great Mess, asserts:
While bronze plans are generally more appropriate for younger adults than older ones, the ACA pricing distortions likely account for part of the reason that enrollment has been so much more robust among older adults. For moderate-income, healthy young adults who get little to no subsidies, ACA age-rating rules have made health care significantly less affordable (Locations 656-658).
A multi-part argument is embedded above. First, reducing age-rating from the former industry standard of 5-to-1 to the ACA's 3-to-1 means higher premiums for unsubsidized young buyers. Second, the fact that unsubsidized premiums are much higher for older buyers, coupled with the pegging of income-adjusted subsidies to a silver-level plan, means that the subsidy often all but wipes out the premium for a bronze plan for an older buyer, but not for a younger one. Third, for those with low income and few or no assets, bronze plans are often close to worthless in any case.

That's all true. It's also true, though, that young adults are inherently less likely to fork out for health insurance than older adults, no matter how attractive the terms.  A recent report on employer-sponsored health insurance by the ADP Research Institute highlights this fact:

Employees under the age of 26 had the highest increase in eligibility—3.9%—but had the lowest participation rate by a wide margin. Only 44% of workers under age 26 participate in employer plans compared with 71% of workers between the ages of 26 and 54. The group with the highest participation rate is the youngest Baby Boomers, aged 55 to 64 years old (full report available here).
Most enrollees in employer-sponsored plans consider them a relatively good deal. Satisfaction rates for ESI are generally in the 90% range. According to the Kaiser Family Foundation's 2015 Employer Health Benefits Survey,  the average employee pays just $89 per month for single coverage, typically covering about 80% of the average individual's health care costs.

I was about to write, "Nonetheless, young adults just aren't biting." But that's only true to a point. In fact many young adults have other options -- most prominent among them, the ACA-mandated option of remaining on their parents' plans until age 26. This, the ADP report finds, has had at least a modestly depressive effect on young adults' takeup of their own employers' offers:
Low participation in health plans by employees under age 26 continues a trend first observed by ADP in 2011 and is now 1.7% below 2014 levels. Instead, the study found, an increasing percentage of younger workers are choosing to remain on their parents’ health plans.
Among full-time employees under age 26, the take rate dropped 4.5% from 2014 to 2016 -- and presumably has been dropping since ACA-mandated eligibility for adult children up to age 26 on their parents' plans became effective in 2010.  ESI takeup rates for employees in the next age range up, 26-34 (including part-timers) matched those for all adults 26-54, at 71%.

In all, according to HHS estimates, a bit over 3 million* adults up to age 26 are insured by their parents as a result of the ACA, compared to about 1.2 million enrollees in the ACA marketplace in that age range, and perhaps a few hundred thousand who bought individual market plans outside the marketplace.

The other ACA resource covering many young adults is the Medicaid expansion. According to the Commonwealth Fund's 2015 ACA tracking survey, 46% of the beneficiaries of the expansion were in the 18-34 age group. That would indicate somewhere between 7 and 8 million today. Meanwhile, according to Kaiser estimates, the continued refusal of 19 states to implement the ACA Medicaid expansion (rendered optional by the Supreme Court in 2012) has stranded 2.9 million people. Perhaps 1.3 million of them are 18-34.

In my view, the main weakness of the ACA marketplace is that subsidies are too skimpy for buyers with incomes above 200% FPL ($23,540 for an individual this year) -- the threshold beyond which Cost Sharing Reduction (CSR) subsidies fade to near nullity. While that weakness may hit higher income young adults relatively harder, as Graham suggests, the converse is that most uninsured young adults are likely to be below that income level. Nationally, 55% of the uninsured had incomes below 200% FPL in 2013; the percentage may be slightly lower today. Among young adults, it's likely considerably higher.

Viewed another way, Kaiser estimates that at present, 64% of Americans eligible for ACA premium subsidies -- 9.4 million out of 14,8 million -- are enrolled in marketplace plans. Of the 5.4 million unenrolled, perhaps 2 million are in the 19-34 bracket. That's as compared to about 2.6 million subsidized enrollees in that bracket (28% of 9.4 million). Most of the subsidy-eligible unenrolled are probably CSR-eligible -- about three quarters of current enrollees are. About 60% have incomes under 200% FPL, where CSR is strong.

As for the unsubsidized, they're about to be slammed by rate hike requests in excess of 20% on average for 2017 (actual increases may be modestly reduced by state regulators).  The ACA has harmed unsubsidized buyers in the individual market -- unless of course they or a family member has a pre-existing condition as defined by insurers pre-ACA, as a large but unknown percentage (roughly between 20% and 50% do).


* Some of the young adults on their parents' plans would  have been covered in any case similar state mandates. Charles Gaba examines how many in some depth here. I would add, based on my own experience as a parent in New Jersey, that state mandates cannot cover employers' self-fund funded plans, which insure a majority of those who get health insurance from their employers, as such plans are governed by ERISA. The ACA under-26 rule does cover self-funded plans, however.

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