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New Options for Young Invincibles

This article was originally posted on Say Ahhh! a health care policy blog by Georgetown University’s Center for Children and Families.
April 1, 2013

By Christina Postolowski

The Affordable Care Act (ACA) will provide enormous new benefits to young Americans – in fact, it already has. Last month, Gallup released a poll showing that the uninsured rate for young adults under 26 decreased yet again, a drop of six percent since 2009. The drop is due in large part to the dependent coverage provision of the ACA, which allows young people to stay on their parent’s plan to age 26. However, some in the health insurance industry and Congress have raised concerns about whether health insurance premiums for young adults would spike under the new law. One little-known part of the new health care law that industry claims will cause rate shock for young adults is “age rating.”

So what is age rating?

Right now, insurers can (and do) discriminate against older adults, and charge them much more for health coverage. For example, Aetna might charge Mary, a 60-year-old, $500/month for health insurance but only charge Julia, a 21-year-old, $100/month for the same plan – a ratio of 5 to 1. Generally, older adults are more likely to get sick and cost more to insure, but the old system allowed insurance companies to cherry pick – to give discounts to young (healthy) adults and drive up premiums for older Americans to keep them off the rolls.

The new age rating change, set to take effect in 2014, creates a system where insurance companies can still charge older populations more money, but they are limited in how much more they can charge to a ratio of 3 to 1. For example, if Aetna still wants to bring in $600/month, they can charge Julia $150/month but they can’t charge Mary any more than $450/month (3 times as much). The new rules – all other things being equal, which as we discuss later, they are not – mean a slightly more expensive rate for Julia, and a slightly cheaper rate for Mary.

However, the insurance industry is only telling half of the story.

That’s because the ACA also has provisions that specifically help young and low-income Americans get discounts on health insurance. New options in 2014, including Medicaid, subsidies, and catastrophic plans, will make coverage better and more affordable for millions of young Americans, so people like Julia actually could wind up with a much better deal. Here are the facts:

  • There are 11.2 million uninsured young adults between age 21 and 29.
  • Of those uninsured young people, about 8.7 million will get free public health insurance called Medicaid or more robust subsidies to buy insurance in new online insurance marketplaces (“exchanges”) because they make under $34K per year.
  • Another million uninsured young adults who make slightly more money (between $34K and $46K per year) will have access to a smaller subsidy.
  • All young people under 30 will have access to lower-cost “catastrophic plans,” which will cover the same benefits but have a high deductible.

These numbers are supported by a new report by the Urban Institute, which found that the vast majority of young adults age 21 to 27 – 92% – expected to enroll in individual plans through the exchanges would not face an increase in cost due to the ACA, because they have incomes below 300% FPL and would therefore be eligible for premium subsidies. All told, the report found that more than 70% of uninsured 21- to 27-year-olds would be eligible for financial assistance to access coverage – either through Medicaid or the exchanges – thanks to the ACA. Certainly, there are technical implementation changes that would have made the transition between the age rating ratio for children (which is less that 1) to young adults (now 3:1) easier – for example, Young Invincibles asked to start the 3:1 age rating curve at age 26 rather than 21 – but for most young people, the financial assistance will be there for them anyway.

There are also other societal and individual reasons why we view age rating as a generational compromise. Allowing premiums to continue to skyrocket for older Americans only harms us individually in the long run (we’ll all be old soon enough), and in the short-term, adds to the burden of our parents and grandparents. Most young Americans strongly support programs like Medicare and Social Security, which provide similar future individual and societal protections, for those very reasons.

The important question is: how do we make all these new coverage benefits real to uninsured young adults?

The real challenge is to educate and enroll over 11 million young adults. For that reason, Young Invincibles is launching a nationwide education campaign this spring, called Healthy Young America. The campaign will educate millions of young people about things like Medicaid and subsidies, catastrophic plans, and new eligibility for young people with pre-existing conditions. An overwhelming majority of uninsured young people will have access to cheaper and better options; we just need them to understand those options. Through smart implementation and an intensive education and outreach campaign, we can make sure that millions of Americans benefit from reform.