Important to all these analyses are assumptions regarding the
effectiveness of the individual coverage mandate, which could encourage
young people to obtain and retain coverage even if it is not otherwise in
their perceived economic interest to do so.
Our analysis raises questions as to whether younger
individuals will perceive coverage as cost effective. In our
analysis, we blended young males with young females to look
at age 21 to 29 cohorts as a whole. Had we broken the analysis out by gender, it would show a greater impact on young
males (meaning premium increases would be higher and the
crossover point would occur at a lower FPL level) and less of
an impact on young females.
The CBO’s 2009 analysis of premiums under the ACA
suggests that more young people would obtain coverage under the ACA than under current market conditions, leading
presumably to the conclusion that risk pools for nongroup
coverage in 2016 would be younger and healthier than today’s markets. More recent estimates at the state level by
various parties have reached different results. These analyses
have focused on factors such as the impact of guaranteed
issue and the elimination of underwriting. Important to all
these analyses are assumptions regarding the effectiveness
of the individual coverage mandate, which could encourage
young people to obtain and retain coverage even if it is not
otherwise in their perceived economic interest to do so. In
this regard, the ACA requires that every individual maintain coverage or pay a tax penalty that is equal in 2014 to
the greater of $95 or 1 percent of modified adjusted gross
income, with the penalties for not maintaining coverage
gradually increasing over time—phasing up to the greater
of $325 or 2 percent for 2015 and ultimately the greater of
$695 or 2. 5 percent of income after 2016. The relatively low
penalties associated with the individual mandate make the
effectiveness of the mandate uncertain, particularly in the
first few years of reform when stability is essential and the
penalty can be expected to fall well below the annual cost
of the minimum standard of coverage required under the
ACA. This situation was given clarity in the June 2012 ruling from the U.S. Supreme Court—the law does not require
maintenance of coverage, only maintenance of coverage or
payment of the tax penalty.
Moving forward
Given the significance of these issues, policymakers should
assess how various ACA provisions affect the underlying affordability and cost of coverage for younger individuals, in
order to better understand issues that may affect their decisions to obtain and/or maintain coverage. Understanding
these issues requires analyses that go beyond consideration
of broadly stated averages, which can mask the effects on
important subpopulations.
There are several options for mitigating the potential
impact of age band compression. One approach, provided
the ACA allows for this, would be to phase in the age band
requirements over a period of years, thus allowing the mar-
ket to stabilize with respect to other changes before full
implementation of age band compression requirements.
This might also bring about higher enrollment levels among
young adults, which could lead to a healthier risk pool over-
all and help hold down premium rates for everyone—young
and old.
KURT GIESA, a fellow of the society of actuaries and a
member of the academy, is a partner with oliver wyman in
Milwaukee.
CHRIS CARLSON, a fellow of the society of actuaries and
a member of the academy, is a principal with oliver wyman
in Milwaukee.
Resources
Actuarial Value and Cost-Sharing reductions Bulletin, Center for
Consumer Information and Insurance Oversight, Feb. 24, 2012. http://
cciio.cms.gov/resources/files/Files2/02242012/Av-csr-bulletin.pdf.
Blumberg, Linda et al., Age rating Under Comprehensive Health Care
reform: Implications for Coverage, Costs, and Household Financial
Burdens, Urban Institute, 2009.
Fronstin, Paul, The Impact of PPACA on employment-Based Health
Coverage of Adult Children to Age 26, Employee Benefit Research
Institute, 2012.
Patient Protection and Affordable Care Act; Health Insurance Market
rules; rate review, Centers for Medicare & Medicaid Services. http://
www.ofr.gov/OFRUpload/OFRData/2012-28428_PI.pdf
This article is solely the opinion of its authors. It does not express
the official policy of the American Academy of Actuaries; nor does it
necessarily reflect the opinions of the Academy’s individual officers,
members, or staff.
36 CONTINGENCIES JAN | FEB. 13
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