One of the primary goals of the Affordable Care Act (ACA)—now known more commonly as Obamacare—is to make health insurance more accessible, particularly for people with preexisting conditions.
Starting in January 2014, with open enrollment beginning this October, the law provides a variety of new protections for people buying insurance on their own. Under these provisions:
- Insurers will be required to accept anyone, including those with preexisting conditions.
- Premium surcharges based on health status and sex will be prohibited and those based on age will be limited.
- Benefits cannot be excluded or limited for preexisting conditions, and all plans will cover a standard set of services.
This is very different from the way the individual insurance market works today. Insurers generally require all applicants to complete a medical questionnaire, and those who have a preexisting condition typically may be denied coverage, charged a higher premium, or offered a plan with limited benefits.
So it stands to reason that people with preexisting conditions who are uninsured should be an important group that will benefit from the ACA and should be the primary focus of outreach as the law rolls out.
However, much discussion seems to be about reaching young and healthy people, often referred to as “millennials” or “young invincibles.” (Young adults have the option of being covered on their parents’ policy until their 26th birthday, but they also will have the option in 2014 of obtaining their own individual policy with the ACA’s protective provisions.) This focus on reaching young and healthy people is almost strangely ironic in that the new health insurance exchanges and Obamacare proponents appear to be engaging in the same “cherry picking” for which they have criticized insurers.
What’s going on here? Well, this is really all about what is taught on day one of Actuary 101 class.
By guaranteeing that everyone has access to health insurance and by not charging those with preexisting conditions more than healthy people, normal economic behavior will be for people who know they need lots of medical care to buy insurance. Conversely, it will be a natural instinct for some people who know they are healthy to buy insurance only when and if they become ill or injured. To the extent this happens, insurers need to increase premiums to cover a sicker-than-average population. As premiums increase, healthy people respond by dropping out of the market, causing premiums to increase even more.
This is what occurred in 1993 in New York when the state prohibited insurers from denying insurance coverage to people with preexisting conditions and required insurers to charge these persons the same premiums as everyone else, regardless of their health or age. The result has been the highest health insurance costs in the country, with typical premiums of $1000 or more per month for a single adult.
Instead, the optimal model is to balance the expensive-to-insure people with preexisting conditions who will enroll once insurance becomes accessible to everyone by enrolling inexpensive-to-insure people who are young and healthy. This will allow risk to be shared broadly, help keep premiums down, and provide protection for the young and healthy in case they do become ill or injured (what insurance is all about, after all).
The challenge is how to encourage those young adults in their 20s—some of whom have preexisting conditions, but most of whom are healthy—to buy insurance that they may not feel they need.
The ACA attempts to address this problem in part through economic incentives:
- It provides the carrot of premium subsidies to low- and middle-income people who buy insurance on their own. By making insurance less expensive for these individuals—who encompass more than half of people expected to buy nongroup insurance—it becomes a better deal to purchase insurance even for someone who is young and relatively healthy.
- It creates the stick of the so-called individual mandate, requiring most people to be insured or pay a penalty to the federal government.
- And it limits “open enrollment” in nongroup insurance plans to once a year, making it less attractive for healthy people to wait until they become ill or injured to purchase coverage.
Whether this approach will work is an open question. Most uninsured young adults will be eligible for financial assistance to make their insurance coverage more affordable, but some young people will face higher premiums because of the limits on how much premiums can vary by age. And because the penalty to enforce the individual mandate is being phased in, it is quite low for 2014 (the greater of $95 per adult or 1% of adjusted income). This may lead some young invincibles to decide to remain uninsured.
So far, the premium bids publicly available from insurers suggest that insurance companies are generally optimistic. They are assuming that uninsured people with preexisting conditions now excluded from the individual insurance market will enroll and purchase coverage, as expected. However, insurers also are assuming that some young and healthy people will enroll too. In fact, premium rates in New York are declining by 50% or more due to broadening of the risk pool (no doubt an extreme case related to the insurance market changes already enacted in that state and the resulting increase in premiums).
A recent poll from the Kaiser Family Foundation found that 7 in 10 young adults indicate that having health insurance is “very important,” and a similar proportion indicate that it is worth the money and something they need. This is certainly counter to conventional wisdom.
Still, it is going to take aggressive outreach this fall to get millennials to buy health insurance. Much of the marketing is going to be targeted at them and their parents. Whether or not the perception is correct that young people do not feel they need insurance, it is certainly the case that the insurance system needs them to function smoothly.
About the author: Larry Levitt, MPP, is Senior Vice President for Special Initiatives at the Kaiser Family Foundation and Senior Advisor to the President of the Foundation. Among other duties, he is Co-Executive Director of the Kaiser Initiative on Health Reform and Private Insurance.
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