The success of the health insurance mandate hinges largely on the enrollment of young (and presumably healthy) individuals, and early sign-up numbers show this demographic isn’t flocking to the exchanges.
The individual mandate portion of President Obama’s Affordable Care Act requires all Americans to have insurance coverage in April 2014 or face a fine of $95 a year for the first year or 1% of their income, whichever is higher. The penalty continues to increase exponentially as a person continues to skip coverage and hits 2.5% of annual income by 2016.
The administration has said they are aiming to have 2.7 million young and healthy enrollees get coverage of a total seven million enrollees on the exchanges in year one in order to balance out the pool of policyholders and keep a lid on premium costs.
But if recent numbers out of Kentucky’s state-run exchange are any indication, young people aren’t eager to get coverage, meaning the pool of policyholders are older, less healthy, and more expensive to insure. This trend could potentially increase premiums across the board, experts say, as the law continues its troubled rollout.
Morningstar insurance analyst Vishnu Lekraj says premiums will likely increase over the next several years due to “adverse selection issues.”
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What happens if young people don’t sign up for coverage?
“If young people do not sign up for these plans, premiums will have to go up because the risk pool becomes more risky,” Lekraj says. “But because of the way the ACA is written, there is a cap in place by the government on what percent of household income can be spent on premiums. If a household goes over those limits, that is where subsidies kick in.”
Subsidies are currently available for those making up to 400% of the federal poverty level, about $45,000 for an individual and $94,000 for a family of four.
Premium increases likely won’t kick in immediately, according to Lekraj, and instead will occur within two to three years.
“Politically, that is damaging to the administration and for the success of the ACA, if premiums go up double digits year to year,” he says.
But to keep up with health-care costs in general, it’s likely premiums would have ticked up anyway, Lekraj says, regardless of the age of enrollees. He adds it’s too early to know exactly how much higher costs consumers can expect.
National Center for Policy Analysis senior analyst Devon Herrick isn’t surprised about younger enrollees being MIA. He points to New York, New Jersey and Massachusetts which before the ACA was signed into law already faced “adverse selection death spiral” issues, meaning older and sick people could not be charged more for coverage than younger and healthy people. In all three states, young people opted out of the system as a whole because of high prices.
“As premiums rose, healthy people dropped out meaning the risk pool was high,” Herrick says. “Premiums rose again, and more healthy people dropped out. The costs for individual insurance were double and triple the national average.”
Herrick says insurers wanted to have the average age of enrollees around 40-41 years old, but in states like Kentucky, the average age is trending a decade higher, the WSJ reports.
“If the average age of enrollees is a decade older, and the health status is worse than expected, that will cause premiums to skyrocket,” he says.