As the Oct. 1 deadline approaches for the launch of the Affordable Care Act’s state health insurance exchanges – “marketplaces” – the need to get young people to sign up for health insurance has been the subject of more media pieces.
Clearly, there are still significant logistical and monetary obstacles remaining in getting these exchanges off the ground, particularly for the 26 states, including Georgia, that let the Department of Health and Human Services implement a “federally facilitated exchange.”
Let’s assume, however, that some form of exchange, convoluted or not, is ready to accept enrollees in Georgia come October.
Why is getting young people to enroll so important?
Bluntly, they subsidize the rest of the older, less healthy enrollees, which is a linchpin in getting the whole bureaucratic monstrosity to work.
As a male in my mid-20s with no medical conditions, I am the enrollee that plans covet to offset the costs of those older and less healthy. Unfortunately, my good health won’t win me major discounts from an insurance plan. Instead, new community rating rules place restrictions on how much higher premiums can be for older enrollees. Health insurance companies are not allowed to simply set premiums based on risk, as they do in other insurance lines.
The combination of limited pricing flexibility and the litany of mandated benefits under the Affordable Care Act results in a direct shift of costs. Young, healthy premium-payers will have to make up the difference between what insurance companies can charge older or unhealthy patients and what those patients actually cost.
The Society of Actuaries, the number-crunchers responsible for pricing insurance, expects individual insurance rates nationally to increase by as much as 32 percent due to high-risk patients entering the exchanges. Georgia Insurance Commissioner Ralph Hudgens has predicted the young in Georgia will see rate hikes of more than 100 percent.
In a quick search for coverage in my area, I found many high-deductible plans likely to appeal to people like myself for $40-$75 a month. If even the present low-cost coverage available at about 50 bucks a month doesn’t attract many “young invincibles,” it’s hard to imagine that paying significantly more will hold any appeal.
Subsidies for low-income individuals will be available in the exchanges, the administration’s way of declaring insurance in the exchange will be cheaper than present options. But the economic logic of shifting part of the costs to the federal government to reduce the part paid for by the individual does not mean that the price of the product went down. In addition, the generous subsidies introduce the unfortunate incentive for people to massage their self-reported 2014 income estimate in order to optimize their potential subsidy, especially since they don’t have to provide any income documents.
In Georgia, subsidies will be available for those earning between 100-400 percent of the federal poverty level (FPL), or about $10,000-$40,000. For those who don’t fall in that bracket – and probably many who do – the smartest option is catastrophic coverage, which won’t be available to all. Alternatively, they will forego coverage. Perpetuating the current state of health insurance serving as a pre-payment mechanism for expenses, the law does not allow catastrophic plans to be eligible for subsidies for those in the 100-400 percent FPL bracket.
In an average year for the young and healthy, health care costs will be minimal, so the only appeal of insurance is financial security from extreme situations; a catastrophic plan is perfect for that exact situation. Subsidies and various plan options aside, paying the “tax” – penalty – for 2014 is far more appealing compared to a monthly premium, even before you take into account that you can always sign up for insurance later.
The administration is employing major efforts to use President’s Obama’s appeal to young voters and some savvy marketing to try to convince young people to sign up in droves. Expect media coverage of non-profit and outreach groups focused on youth to increase as we lead up to the October 1 launch.
The guile could work, but young people are far more likely to be persuaded by a more pressing issue: their limited bank accounts. This fall every individual, regardless of age, will have to consider the available options. If relying on browbeating groups into making financially irrational decisions is essential to the exchanges’ operation, then the illogical nature of the law itself should be a little more clear.
While it will almost certainly not make health care more affordable, the Affordable Care Act will be an interesting experiment in trying to convince young people to act against their own economic best interests.
(Trent Leonard is a graduate student at the University of Georgia. The Georgia Public Policy Foundation is an independent, state-focused think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians.)