By most accounts, now is a great time to be a young person on the health insurance marketplace. Thanks to the Affordable Care Act, children can stay on their parents' insurance plans until the age of 26; state insurance exchanges will make it easier for young people without a job to purchase individual insurance online; and many new insurance plans will be specifically tailored to suit the market of young, healthy buyers looking to pay lower premiums.
So, why have so many organizations in the insurance industry recently issued dire warnings that the Affordable Care Act will be devastating to young people?
At the moment, insurance plans are legally allowed to charge older beneficiaries higher premiums. Insurers will ask these older buyers to pay more up front, because they are generally in need of more health care services. Aging Americans have a higher risk of diabetes, heart disease and other chronic diseases that may require frequent, costly treatment. Older adults may also incur higher costs in terms of recovering from accident or injury, and are more likely than young people to visit the doctor for general wellness check-ups. With more usage of the health care system, insurance companies are understandably inclined to charge higher premiums to older adults.
However, Obamacare changes national policy with regards to age-based insurance pricing. Starting in 2014, insurance companies will be forbidden from charging an older customer more than three times the amount that is charged to a younger customer. If a 27-year-old beneficiary pays $2,000 in annual premiums, a middle-aged adult on the same plan cannot legally be charged a premium of more than $6,000. This pricing policy is meant to limit age-based discrimination, while still allowing insurance companies to receive adequate compensation for taking on older clients who may require more health care coverage.
While this policy change seems like a great move for increasing fairness and stopping discrimination, young people could be hurt in the process. If an older client cannot legally pay more than three times what a younger client is paying, young adults may be asked to pay higher premiums than they currently do. After all, it is unlikely that an insurance company would be able to lower one customer's bill without raising costs for other beneficiaries. In essence, then, younger insurance holders might end up subsidizing the now-cheaper coverage available to older adults.
Earlier this year, one management and consulting firm sent an analyst to testify at the federal leval about potential insurance price increases for young people. In front of the United States Energy and Commerce Subcommittee, this analyst warned that young insurance buyers must be more thoughtfully considered when insurance legislation is being passed. According to studies conducted by his firm, if insurers were to lower prices for older adults due to the ACA mandate, premium price for beneficiaries in their 20s could increase from current levels by as much as 29 percent.
The group American Health Insurance Plans (AHIP) has also campaigned policy makers to reconsider the limits on age-based pricing. AHIP agrees that changing the cost policy to a 1 to 3 pricing model may lead to higher costs for younger people; studies by AHIP have backed up this assumption. The group is also concerned that American youth may choose to forego insurance altogether - preferring to pay as little as $100 per year rather than remain with their insurance policy and pay higher premiums. If fewer young people purchase insurance, it will mean higher costs for everyone, and poorer health for the nation.
AHIP has encouraged the Department of Health and Human Services to delay the new pricing model until other ACA reforms have come into effect. In that way, the insurance industry will not be at risk to suffer financial loss at a time when the market is already experiencing so many new reforms.
Then again, this pricing policy to limit costs for older adults will not necessarily lead to higher costs for young people. The group HealthPocket have looked at data from more than 3,000 individual health plans across the nation, and found that 36 states already have plans which follow the 1 to 3 pricing model. Residents of these states should therefore not see any change in premium costs once the Obamacare pricing rules come into effect. HealthPocket did, however, note that men may see higher insurance rates - right now, women are generally charged higher premiums, but the ACA will ban that practice come 2014. To equalize prices for men and women, men may be asked to pay more. Then again, 13 states already ban the practice of gendered pricing, and so once again, male customers in these states may see little change in coverage costs.
Indeed, the issue of young people and health insurance is nothing new. For years, the health care and insurance industries have expressed concern over the fact that young Americans may feel invincible against health maladies, and therefore fail to purchase insurance. In 2009, an advocacy group was formed to encourage youths to buy insurance, and stand up for the rights of young people on the health and insurance marketplaces. The group, Young Invincibles, is also hoping that age-based pricing schemes don't turn into an excuse for insurance companies to raise rates for younger buyers.
Until the new pricing rules come into place in 2014, it is impossible to know if insurance rates will be raised, and for whom. In the mean time, advocates and politicians on both sides of the issue will no doubt continue to fight for health insurance that is both fairly priced, and affordable to all.