for subsidized reductions in patient cost-sharing that will
lower the total cost of coverage.
Building the Study
To create our study, we used three primary data sources.
The first was the 2011 Current Population Survey (CPS)
conducted by the U.S. Census Bureau (use of the 2011 CPS
data takes into account the impact of the ACA’s adult child
coverage provision, which became effective for plan years
beginning on or after Sept. 23, 2010). For premium-level assumptions, we relied on Congressional Budget Office (CBO)
estimates regarding selection and impact of increased benefit levels tied to actuarial values. We excluded the effects of
medical cost trend because it’s assumed to occur regardless
of the ACA. (CBO estimates of premium increases include
growth in the underlying cost of coverage related to an increase in benefits over what is purchased today, positive
selection due to an assumed improvement in risk pool mix,
and lower prices due to greater market efficiencies.)
Our estimates of the level of premium assistance are
generous, as we based them on average premiums. Had
we based them on estimates of premiums for the second-lowest-cost silver plan (as will be the case under the ACA),
the assumed levels of premium assistance would have been
lower and consumer out-of-pocket costs for health insurance and the premium rate changes in 2014 would have
been higher.
To construct premiums by age in 2013, we relied on a set
of proprietary rating factors maintained by Oliver Wyman.
These rating factors are based on costs and are consistent
with factors used in the industry. For 2014, we
used the standard
age curve that
CMS put forward in its
proposed Health Insurance Market Rules. We also collected data from two large health insurance issuers to verify
our estimates derived from CPS data on demographic distributions and found similar results when looking at these
carriers’ actual market data.
Coverage Costs for young Adults
While a range of ACA provisions will be implemented in
2014, perhaps the most important for young adult insurance
premiums are the provisions for age band compression and
the provisions related to advanced premium assistance tax
credits and cost-sharing reduction assistance.
The essence of age band compression is that younger
people pay more for their coverage so that older people can
pay less. As with many other issues that affect pricing, this
is effectively a matter of the amount of cross-subsidization
that will flow among different enrollees with respect to
their health insurance premiums. We need to distinguish
the cross-subsidies that are the result of age band compression from the general pooling of risk that underlies all
insurance. While insurance generally provides a retroactive cross-subsidy among insured individuals to protect
against unknown risks, age band compression is a prospective cross-subsidy from the young to the old.
Our analysis shows that under the ACA, premiums for
people aged 21 to 29 with single coverage who are not eligible for premium assistance would increase by 42 percent
over premiums absent the ACA. People aged 30 to 39 with
single coverage who are not eligible
for premium assistance would
see an average increase in premiums of 31 percent. Those
with single coverage aged
60 to 64 who are not eligible for premium assistance
would see about a 1 percent
JAN | FEB. 13 CONTINGENCIES 31
