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The Truth About Health Coverage Affordability and Age Rating under Obamacare

By Aaron Smith

Overall, the Affordable Care Act (“Obamacare”) will provide enormous new benefits to young Americans. We are seeing this already. This week, Gallup released a poll showing that the uninsurance rate for young adults under 26 decreased again, a drop of six percent since 2009. The drop is due in large part to the dependent coverage provision of the Affordable Care Act, which allows young people to stay on their parent’s plan to age 26.

However, some in the health insurance industry have raised concerns about whether health insurance premiums for young adults would spike under the new law. The reason? A little known part of the law called “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 Mike, a 60-year old, $500/month for health insurance but only charge Julia, a 21-year old, $100/month for the same plan. This is 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, tries to create a fairer system. Insurance companies can still charge older populations more money, but they are capped in how much they can charge. The law puts in place a new ration 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 Mike any more than $450/month (3 times as much as Julia). The new rules mean a slightly more expensive rate for Julia, and a slightly cheaper rate for Mike. The insurance industry claims that more expensive rates for young Americans like Julia will make it harder for them to buy insurance – which sounds logical.

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

That’s because Obamacare also has provisions that specifically help low-income Americans get a discount on health insurance. Since most young adults tend to be low-income, 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 21 and 29 years of age.
  • 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.

So the vast majority of uninsured young adults will actually see more affordable, better quality health insurance than ever before, even with the new age rating rule.

But there is another reason we think the age rating rule is reasonable. 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.

All that said, there are some fixes in implementing this change that can help improve the age rating rule and make the transition easier for young adults moving from childhood to adulthood. For example, the new rules allow a 5 to 1 age rating for children, which switches suddenly to 3 to 1 when young adults turn 21. We have suggested that the Administration create an easier transition by starting this new “adult age rating curve” at age 26, a move intended to ease the burden on the small cohort who don’t get the larger subsidies. This proposal also recognizes that a 21-year-old is in a much different situation than a 26-year-old.

Why is affordable coverage so important to young people? Because we do get sick or injured and often don’t have the financial resources to cover our care. About 15% of young people also have chronic diseases, and are often denied coverage because they are sick or charged much more. All of those young people will be able to access coverage in 2014.

The important question is how do we make all these new coverage benefits real to uninsured young adults.  It is a real challenge to educate and enroll over 11 million young adults.

For that reason, Young Invincibles is launching a big 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.