Reform expected to raise young adult premiums

By | January 7, 2013 • BenefitsPro

A provision in the Patient Protection and Affordable Care Act might
make health insurance a lot more expensive for young adults, a new
study finds.

According to actuaries at consulting firm Oliver Wyman, the law’s age
rating provision could mean a 42 percent hike in premium costs for
people aged 21 to 29 when they buy individual coverage.

Similarly, the research finds that “single adults up to age 44 with
incomes beginning above approximately 300 percent of FPL can expect to
see higher premiums, even after accounting for premium assistance.”

Under health reform, insurers are limited to the amount they can
charge older people for their health insurance to a maximum of three
times the amount younger people pay.

Supporters say the age rating restrictions are necessary to ensure
seniors are fairly charged for coverage, but others argue the
requirement will raise costs for young adults and lead them to forgo
health insurance, which will negatively impact the entire market.

“If younger, healthier people choose to forgo purchasing insurance
until they get sick or injured, costs will increase for everyone—young
and old,” says AHIP President and CEO Karen Ignagni.

America’s Health Insurance Plans has urged the Health and Human Services Department to delay its implementation of the 3:1 rule.

“Higher rates for the younger population combined with low mandate
penalties during the first years of the ACA implementation will result
in adverse selection because younger individuals are likely to choose
not to purchase coverage,” AHIP wrote in comments to HHS. “When these
younger individuals do not enroll, destabilization of the individual
market will occur, premiums will increase in the individual market for
enrollees of all ages, and enrollment will decline.”

The study also found that people in their 30s with single coverage
who are not eligible for premium assistance would see an average
increase in premiums of 31 percent, while those with single coverage
aged 60 to 64 who are not eligible for premium assistance would see
about a 1 percent average increase in premiums.

The authors said that to understand the full impact of the PPACA on premiums, “it’s important to move beyond broad averages.”

“Averages may mask substantial differences in how market reforms will
affect individual states and various populations in those states,
particularly in the pricing of coverage and the pooling of risk,” they

The study was published in the January/February issue of Contingencies, a publication from the American Academy of Actuaries.