premium Rate Changes from 2013 to 2014 and the Number of
Individuals Affected—Ages 21–29, Single Contracts in the Nongroup
Market, After premium Assistance and Excluding Medical Trend
Insured in the NonGroup Market
Premium Rate Change
46%
350,000
42%
300,000
27%
Premium rate change
60%
50%
40%
30%
20%
10%
0%
–10%
–20%
–30%
–40%
–50%
400,000
50,000
Number of Individuals
250,000
200,000
-15%
150,000
100,000
number of Individuals with single Contracts
in the nongroup Market
138%–
200%
200%–
250%
250%–
300%
300%-
400%
FPl
source: oliver wyman analysis of 2011 CPs data
-44%
400%+
Table 2 displays the demographic distribution of currently insured individuals who are covered through the
nongroup market. We assigned the contract type based on
the number of individuals in a family with coverage and the
age of the covered individuals. Table 2 shows the number of
insureds, not the number of contracts; a family contract, for
example, might cover four insureds.
Note that roughly 7. 6 million people, or 40 percent
of those covered in the nongroup market in 2011, had
incomes above 400 percent of the FPL and would be ineligible for premium assistance. Taking into account both
the 400 percent FPL phase-out level and the 225 percent
FPL crossover point, we estimate that almost 80 percent
of those ages 21 to 29 with incomes greater than 138 percent of FPL who are enrolled in nongroup single coverage
can expect to pay more out of pocket for coverage than
they pay today—even after accounting for premium assistance. With a crossover point of about 300 percent of FPL
for those aged 30 to 44, we estimate that about one-third
of those older than age 29 with incomes greater than 138
percent FPL who currently are insured with individual
contracts will see higher premiums even after accounting
for premium assistance.
Chart 3 summarizes the effects for young adults aged 21
to 29 who currently are enrolled in nongroup single coverage
(the number affected does not include potentially affected
uninsured as discussed above). This chart shows the premium change, taking into account age band compression net of
premium assistance, and the percentage of those with such
coverage affected at different FPL levels. Note that the reason the chart does not show strictly increasing rate changes
is that rate changes are greater for young males than for
young females and there is a higher proportion of females
in the 400+ percent FPL range.
Taking other factors into Account Also of potential importance to the cost of coverage for young adults are two ACA provisions: the creation of a cata- strophic plan option and coverage of adult children to age 26 through their parents’ group coverage.
The ACA provides that beginning in 2014 issuers can offer a catastrophic plan option to those under age 30 and
to others for whom the cost of coverage is deemed unaf-fordable. The ACA’s provisions on cost-sharing applicable
to “metallic level” coverage and the actuarial value requirements do not apply to these plans. If they are substantially
more affordable than other coverage, catastrophic plans
may prove an important option for young adults to keep
premiums affordable (though premium assistance will not
be available to those purchasing the catastrophic coverage,
regardless of income).
The ACA also includes provisions allowing parents to
keep adult children on their employer-sponsored group coverage up to age 26. This provision is already in effect, and
early indications are that it has helped to cover more young
adults. Because this coverage is by definition group coverage,
however, increasing dependent coverage for young adults
in this way does not improve the quality of the risk pools in
the nongroup market. In fact, comparing the 2011 CPS data
against earlier periods suggests that one effect of the adult
child coverage provision on the nongroup market has been
to increase the proportion of older enrollees in relation to
younger enrollees.
From a policy perspective, the issue of age band compression and whether its effect on the cost of coverage for young
people is outweighed by the value of premium assistance
matters for at least two reasons.
■ ■ Equity—While judging fairness and the trade-offs implicit in age band compression raises subjective questions,
technical analysis can help objectively unmask distributional differences relevant to this question.
■ ■ Market Efficiency—If people aged 21 to 29 are asked
to pay substantially more for their coverage than they
otherwise would, will they choose to obtain or maintain
coverage at all? This question has clear implications for
insurance markets, which rely on the presence of balanced risk pools in order to provide affordable coverage.
Younger people tend to be healthier and have expected health care costs that are lower than those of older
people. An adult near retirement age, for example, is generally expected to have health care costs that are roughly
six to seven times or more than those of the average male
aged 21 to 29. If healthy young people choose to leave the
risk pool or join in proportionately fewer numbers relative to those with immediate health care needs, the effect
would be to create an unbalanced risk pool and higher
prices for those seeking coverage.
JAN | FEB. 13 CONTINGENCIES 35
