WonkBlog (Washington Post) on February 11, 2013
by Sarak Kliff

Welcome to Health Reform Watch, Sarah Kliff’s regular look at how the Affordable Care Act is changing the American health-care system — and being changed by it. You can reach Sarah with questions, comments and suggestions  here. Check back every Monday, Wednesday and Friday at 2 p.m. for the latest edition.

If there’s any group that should be worried about Obamacare screwing over young people – as Buzzfeed’s Ben Smith argued Sunday it does – it’s the Young Invincibles: Georgetown law students founded the group in 2009, specifically to advocate for young adults in the health reform debate.

Since then, Young Invincibles has since worked on publicizing the law—and also critiquing it, by submitting comments and letters to Health and Human Services, on how the Affordable Care Act could do better for young Americans.

The health care law will, starting in 2014, limit how much health insurance companies can charge older customers. A 64-year-old’s premium can only cost three times as much as the price charged to a 26-year-old.

That’s really different from what happens right now: The vast majority of states have no limits on this practice known as “age rating.” Those that do can be seen on this map, as the handful of yellow states.

The worry for young adults is that, with a firm cap placed on the premiums for older Americans – who tend to have higher health care needs – insurance companies will need to bring up the premiums it charges young Americans, in order to make ends meet.

The actuarial firm Oliver Wyman recently looked at the case of a 25-year-old who earns $33,510, which puts her at 300 percent of the federal poverty line. Right now, she can buy a health insurance plan for $2,400 per year, or about 7.2 percent of her income. After health reform, the firm estimates that her premiums will increase by $785, now eating up 9.5 percent of her salary.

The worry – for both the insurance industry and the Obama administration – is that young Americans will see the higher price tag and decide not to purchase coverage altogether. If that’s what happens, the insurance market could enter a death spiral: With the healthy people not buying coverage, prices would spike and insurance would become unaffordable for everyone else.

Long story short: It’s bad news for Obamacare if prices skyrocket for young people.

Turns out though, there’s a number of reasons that Young Invincibles isn’t especially worried about a scenario like this one playing out. “Generally, we think the Affordable Care Act is going to have a lot of positive outcomes for young people,” Young Invincibles deputy director Jen Mishory says. 

Mishory has spent a ton of time looking at the age rating provisions in the Affordable Care Act and shares two big reasons why she’s not too worried about a premium spike for young adults.

To start, about 90 percent of uninsured young adults will qualify for the law’s more generous subsidies. Census data shows there are about 11 million Americans between 20 and 29. Eight-seven percent of them have incomes below 400 percent of the federal poverty line, meaning they will qualify for some level of a tax subsidy or for the Medicaid program.

The bar on the far left represents the 4.83 million young adults who earn less than 138 percent of the federal poverty line and will become eligible for Medicaid. That entitlement program does not use the age rating provisions used in the private market, meaning that one-third of young adults won’t interact with this part of Obamacare in any way.

The three bars in the middle show young adults who will become eligible for subsidies  under the Affordable Care Act. Those subsidies will cap the young adults spending on health insurance as a percent of income. Let’s take an individual who earns $22,240, which works out to 200 percent of the poverty line. That person would get enough tax subsidies so that, at most, he was spending $1,407 annually on health insurance (a $117 monthly premium).

Those subsides get less generous though as you move up the income scale. Those who earn 300 percent of the federal poverty line will be expected to pay 9.5 percent of their income, or $3,185, like the example that the Oliver Wyman firm used.

About 13 percent of uninsured young adults earn more than the federal poverty line. These individuals won’t get any subsidies at all and could be hit hardest by the increased insurance rates – and they could decide that an expensive insurance policy, one that eats up one of every $10 they earn, just isn’t worth the price.

Mishory sees a few options in this situation, too, that could protect against big rate hikes. The Affordable Care Act requires insurance plans to offer health plans that cover different levels of medical expenses. These are rated as metallic levels: A bronze plan, for example, would cover 60 percent of the average enrollee’s costs whereas a platinum plan would foot 90 percent of the typical patient’s bills.

The whole idea there was to give consumers the opportunity to make a trade-off: They could spend less on premiums, and receive less comprehensive coverage in return. Young adults are also eligible for an a less expensive option: Those under 30 will be allowed to buy catastrophic coverage, which only covers bare minimum benefits alongside with a high deductible.

The combination of subsidies for most – and lower cost health plans for all – explains why Young Invincibles was pretty sanguine about the age rating regulations in comments they submitted in December.

“The change in age rating may increase premiums for young people in the individual market, however, the reality is more nuanced,” the group wrote. “Most young people will also receive protection from those increases through subsidies and access to reduced-cost coverage such as dependent coverage and catastrophic plans.”

Young Invincibles does have some gripes with the Health and Human Services regulations. Right now, the rules say children (defined as individuals under 20) purchasing an individual policy have an especially low premium, 65 percent of whatever would be charged to a 26-year-old. As soon as they turn 21 though, their rate spikes up to to the 26-year-old rate. Young Invincibles would like to see a more graduated increase, with small bump-ups for each year in the early 20s.

Overall though, the group that represents young adults in health care says the young adults aren’t really getting screwed at all – especially when they think about the fact that they won’t be young forever.

“We feel generally the age rating strikes a fair balance between keeping insurance affordable for young adult,s but also recognizes the societal value of expanding coverage for everyone” Mishory says. “Those are our parents, our grandparents, and someday us. We want to keep coverage affordable for everyone.”

KLIFF NOTES: Today’s top health policy reads from around the web. 

Businesses worry that rejecting the Medicaid expansion could increase their health care costs. “Employers in several states are bracing for higher health-care costs as some governors, worried about the impact on state budgets from the federal overhaul, resist a planned Medicaid expansion.” Louise Radnofsky in the Wall Street Journal.

How Barry Goldwater stopped Oklahoma from accepting Obamacare dollars. “Insurance Commissioner John Doak announced he would return $1 million in federal funds barely a week after Barry Goldwater Jr., board member at the Goldwater Institute, proposed in an e-mail that the state return all money associated with the new law. The money was intended to pay for health insurance premium rate reviews as required under the Affordable Care Act.” Zeke Campfield in the Oklahoman.