Contingencies Online - January/February 2013

My Generation CONTINUED

Change in Nongroup premiums for Single Contracts
Excluding Medical Trend—2013 to 2014
400+ percent of FPl

The difference between young and old at similar income levels is that younger individuals are much less likely to purchase coverage if it takes up 9. 5 percent of their income, while older individuals have a greater expectation of health care cost spending as a percentage of income.

rate change 45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

21–29 30–39

age 40–49

50–59 60–64

source: oliver wyman analysis

average increase in premiums. Our estimates of these effects are shown in Chart 1 and reflect the assumptions described above. These estimates assume a starting age band of about five-to-one, reflecting states where coverage currently is underwritten.

Our core finding is that young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the ACA, even after accounting for the presence of the premium assistance. Similarly, 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. This is because in today’s market, younger enrollees can buy coverage that more closely reflects their expected actuarial costs based on their age, and this coverage is pooled with other similar risk classes in accordance with standard actuarial principles. In addition, the ACA requires that all nongroup coverage meet essential health benefit requirements, both with respect to the type of services covered and with respect to the actuarial value of the coverage.

Consider, for example, a 25-year-old person with income at 300 percent of FPL, or $33,510. This person currently could purchase coverage for about $2,400 per year, or 7. 2 percent of his or her income. Age band compression and the other changes to the ACA would result in premiums (before premium assistance) increasing by 42 percent to $3,408. As shown in Chart 2, this person at 300 percent FPL will be required to pay 9. 5 percent of his or her income, or $3,183, toward the cost of coverage. The cost of his or her actual premium would increase by $783, even with the $225 in premium assistance. (The impact of cost-sharing reduction assistance at these income levels is not relevant because the assistance completely phases out at household incomes above 250 percent of FPL.)