Author: Rick Ungar
“Over the past few months, the nation’s largest health insurance companies have been hard at work selling a narrative claiming that the Affordable Care Act is about to result in dramatically larger premium costs for a significant number of Americans. Indeed, the warnings have become so worrisome that the massive increases they are predicting have taken on a frightening descriptor all its own—rate shock.
At the heart of the health insurers’ retelling of the Chicken Little story is a regulation promulgated by the Department of Health and Human Services a few months back limiting what a health insurer can charge a 64 year old to three times what they charge a 21 year old. Currently, the average bump for older participants is typically five times that of the younger customers—although there are examples where the increase can reach ten times what is paid by the young immortals buying coverage.
As a result of the lower premium prices that will be paid by older participant, the expectation—one created by the large insurance companies—is that the youngest participants will have to pay significantly more to make up the difference.
Now, The Urban Institute—an organization so clearly bi-partisan that even the most suspicious partisan would encounter extreme difficulty making a case for bias—is out with a study that states that the ‘rate shock’ argument is “unfounded”, particularly when applied to the millions of Americans in the individual market.
As noted in the report summary:
“Overall, we find that loosening the rate bands from 3:1 to 5:1 would have very little impact on out-of-pocket rates paid by the youngest nongroup purchasers, once subsidies are taken into account. This is not only the case for all likely purchasers, but also for two populations of particular concern: the 10 million 21-27 year olds who are currently uninsured and the 3 million who currently have nongroup coverage.”
By suggesting that the insurance company claims are merely ‘unfounded’, The Urban Institute is being quite kind as I would suggest a far harsher explanation for their scare tactics.
What the insurance industry is not telling you—as revealed by The Urban Institute study—is that the overwhelming majority of young people who would be charged a higher premium to make up for the lower premiums to be paid by their elders will either be covered by the premium subsidies offered via the insurance exchanges or eligible for Medicaid under the expansion of the program extending health coverage to those earning 133 percent above the federal poverty line.
Therefore, as clearly stated by the report, the lowered premium costs to the oldest participants in an insurance plan “would have very little impact on out-of-pocket rates paid by the youngest nongroup purchasers.”
According to the study, here are the estimates:
- 92 percent of people ages 21 to 27 projected to buy an individual plan in an exchange in 2017 are expected to have incomes less than 300 percent of the poverty line, so they would be eligible either for Medicaid (if their state expands it) or for substantial subsidies to help pay premiums in the exchange.
- Similarly, 88 percent of 18- to 20-year-olds projected to buy a plan in the exchange are expected to be eligible for premium subsidies or Medicaid.
In addition to the above statistics, The Urban Institute study highlights the fact that of the 961,000 young adults between the age of 21 and 27 who currently buy their own health insurance as an individual and make too much money to qualify for premium subsidies or Medicaid, a full two-thirds are 26 years old or younger and are in families receiving employer coverage. Accordingly, these kids can receive health insurance coverage under their parent’s employment policy as Obamacare requires that insurers allow parents to add their kids who are under 26 to their employment based health care plan.
While any new law as significant as the Affordable Care Act creates questions and concerns, the false campaign being waged by the health insurance companies is a prime example of an industry using fear as a tool to get the government to change a regulation that they don’t like.
There remain questions as to the impact the rate band limitations will have on businesses that provide health insurance to employees—particularly those with a younger employee base. However, the expectation is that—given the reality that businesses tend to have a ‘spread’ in the age of employees—things should average out. Under the current structure, businesses are paying less in premium contributions for younger employees but considerably more for older employees. Under Obamacare, the prices will rise at the younger end of the scale but decrease significantly for older workers.
For this reason, the primary concern has been focused on what the changes will mean for younger health insurance customers who purchase individual policies.
As The Urban institute study makes crystal clear, the ‘rate shock’ controversy has far more to do with insurance company lobbying efforts and far less to do with the reality of what health insurance will cost for millions of young Americans.