How to boost young adult enrollment with one easy trick

Warning: It’s about to get wonky.

A key way that insurance markets remain stable is by having a balanced mix of healthy and sick enrollees. In general, young adults tend to have lower health costs than older adults, which is why health insurance experts say we need more enrollment from young adults to balance the higher expenditures of older adults. The trick is to make insurance affordable for those who need care the most without charging those who have fewer health needs so much that insurance isn’t worth purchasing.

What you need to know about premium assistance and age rating under the ACA

The Affordable Care Act (ACA) tried to ensure that older adults could get affordable insurance by telling insurers they could charge a 64 year old no more than three times what they charge a 21 year old. This is known as a 3:1 age band. In practice, the insurance company collects a full premium that reflects the enrollees age but the actual payment comes partially from the enrollee and, if the enrollee is subsidy-eligible, partially from premium assistance.

Most ACA enrollees qualify for premium tax credits that cap the cost of their premium based on their income. If your income is in the range of eligibility for premium assistance, no matter your age, you will pay the same amount out-of-pocket for the benchmark silver plan, which is the second lowest cost silver plan on the market. There’s nothing magical about that particular plan — it just sets the standard of affordability for a basic plan available in each ACA state marketplace.

In practice, this means two people making the same income, regardless of age, pay the same amount out-of-pocket, despite the age rating rules. In New Mexico, a 21 year old making $20,000 a year pays $142 a month for the benchmark just as a 64 year old making $20,000 a year pays $142 a month for the benchmark plan. The government covers the rest of the premium based on age rating, so a 21 year old’s premium costs quite a bit less to the government than a 64 year old.

Source: Kaiser Family Foundation 2017 Subsidy Calculator

Why bronze plans are cheaper for older adults

As I mentioned above, there is nothing magical about the silver benchmark plan. It just represents a basic plan on which the definition of affordability is set based on the prices within the marketplace. So while that plan may be set at a specific cost, the cost of other plans is subject to market forces. Bronze plans under the ACA appear to be priced in such a way that when premium assistance is applied to those plans, the cost to the enrollee favors older adults due to age rating. This essentially means that bronze plans are being priced lower than one would expect based on the benchmark plan cost. This is likely caused by insurers attempting to attract younger and healthier enrollees to the cheapest plan on the market.

But this force of competition actually distorts the price of bronze plans in a way that disadvantages younger enrollees who are subsidy-eligible. Older adults can access bronze plans at a significantly lower price than younger enrollees. Take a look at the cost of bronze plans based on age, holding everything else constant.

Source: Kaiser Family Foundation 2017 Subsidy Calculator

This runs counter to what insurers are trying to do when they price bronze plans as low as possible to attract healthier individuals to purchase plans with lower premiums. This may actually incentivize older, sicker enrollees to enroll in plans that are more affordable on the front end that expose them to more costs when they actually need care, all while giving young adults less incentive to enroll in the first place. After all, the cheaper the plan, the more enticing it is to someone who feels that they don’t absolutely need health insurance.

A simple fix: don’t age rate subsidized enrollees

Since subsidized enrollees already have their benchmark premium capped, the effect of age rating is completely cancelled out for that plan. Eliminating age rating for subsidized enrollees would have no impact on the price of the benchmark plan. It would, however, reduce the cost of bronze plans for younger adults, attracting more healthy people to the market, thereby reducing premium costs across the board and likely reducing per-enrollee spending on federal financial assistance.

Where age rating actually matters is in the unsubsidized segment of the market, where enrollees face the full cost of the premium. It makes sense to age rate in the unsubsidized portion of the market because the cost of insurance could deter young people from signing up and lead to more older enrollees paying even higher premiums.

It’s just too good to be true. What are the trade offs?

Easy now — it’s not that great, but thank you for saying so. There are a few modest trade offs to this proposal. The first is that the government would have to spend about 2% more per subsidized person. However, this could be offset by a corresponding reduction in premiums due to higher young adult enrollment. More people enrolling in coverage creates a healthier risk pool and will likely lead to more affordable premiums for people who aren’t eligible for subsidies.

Another trade off is that older adults would pay slightly more for a bronze premium than they are right now. But if the theory of age rating holds, we shouldn’t expect older adults to pay less than younger adults — and in practice they would actually be paying the same amount, just as they do for the silver benchmark.

Some (including myself) would have a problem with pushing young adults in to skimpy insurance. But I would rather have young adults enrolled in skimpy insurance than no insurance at all. This is a tough trade off to accept, but under the current system, I think it’s something we should take seriously.

Final thoughts

I don’t have access to a model that could show the effect this would have on enrollment, but offering lower premiums to young adults would clearly drive enrollment upwards. If anyone has a model that they could plug this into, please let me know! Thanks for getting wonky with me. Send me a message if you have any questions: colinb1123@gmail.com

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