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Study: It’s All Healthy People — Not Just Young Adults — Who Are Critical To ACA Success

By Jay Hancock

December 17th, 2013, 3:09 PM

Pushing back against those who warn that low levels of younger subscribers could threaten coverage sold under the health law, analysts for the Kaiser Family Foundation say enrollment of young adults “is not as important as conventional wisdom suggests.”

Even if insurance pools contain only 25 percent young adults rather than the hoped-for 40 percent, medical claims and other costs would exceed premium revenue by only about 2.4 percent,¬ they estimate. That’s far below the kind of loss that would lead to an unsustainable spiral of huge premium increases and fewer and fewer subscribers, they say. (Kaiser Health News is an editorially independent program of the foundation.)

“Premiums are not as sensitive to the mix of enrollment as fears about a ‘death spiral’ suggest, particularly with respect to age,” wrote KFF’s Larry Levitt and colleagues. More important, they add, is that insurers recruit a balanced mix of the healthy and the sick of all ages.

Many deem enrolling “young invincibles” to subsidize older, sicker members as essential to the policies sold through healthcare.gov and other portals created by the Affordable Care Act. That goal has gained attention as some states have disclosed the ages of early enrollees. In California, for example, 21 percent of those signing up in October and November were aged 18 to 34.

But under ACA guidelines, insurers charge young adults as little as one-third what they charge a 64-year-old. (Younger adults are still paying more than their expected average medical costs, however.) That limits subsidies from the young and means that the importance of enrolling them might be overestimated, the KFF analysts suggested. In other words, younger folks who stay uninsured deprive insurers of less revenue than an equal number of uninsured older adults would.

“My numbers aren’t immensely different from the Kaiser numbers,” said Seth Chandler, a law professor and insurance specialist at the University of Houston. “Kaiser is a little more upbeat in the way they’re thinking about it than I am.”

Chandler estimated that lower levels of young-adult enrollment could generate losses as high as 10 percent, a figure he said “is not wildly different” from the one produced by the KFF model and one that wouldn’t necessarily doom Obamacare.

The key, both KFF and Chandler say, is to recruit enough healthy members no matter what their age.

“It is important to attract the ‘young invincibles,’ but maybe with a greater focus on the ‘invincible’ part,” the KFF study said.

Many worry that consumers with expensive illness will be the first to sign up and healthy folks, who don’t think they need immediate coverage, will be inclined to stay away — especially given the sign-up portals’ computer problems.

The KFF analysts expect young-adult enrollment to increase with the approach of the March 31 signup deadline to avoid penalties for lacking coverage. Even if some carriers experience sicker-than-average members and high medical claims, the ACA includes risk-sharing mechanisms to reduce carriers’ exposure and potential need to raise premiums, many have noted.

Chandler, whose blog is entitled¬ “ACA Death Spiral,”¬†is less confident it will all work out.

President Obama’s decision to let insurers renew 2013 plans for existing policyholders will tend to keep healthy people out of plans falling under the health law, which could drive up average costs, he said. He thinks risk-sharing mechanisms might need¬ hundreds of millions of dollars more to do their job of stabilizing the market.

In any event, what’s most important is not enrollees’ birthdays but how sick they are. Nobody will know that for months.

“People have focused on age because that is the only data we have,” Chandler said. “But the real issue is the health status of the people we enroll.”

13 Responses to “Study: It’s All Healthy People — Not Just Young Adults — Who Are Critical To ACA Success”

  1. Edward H. says:

    Judging from what I have seen and enrolled (I have been a broker for 33 years), the vast majority of my customers qualify for the subsidy…and often a large one!

    Although there are consumers with non-grandfathered plans that don’t qualify for the subsidy, it appears many healthy uninsured persons are still staying away from Exchanges.

  2. The expansion of the state Medicaid programs could have been accomplished by simply changing the eligibility requirements without the other ACA taxes and changes. That part will succeed at a cost to state governments. If your actuarial models are off (as many that I have discussed with), you are doing a disservice the program by being very overly optimistic. By as much as 5 times underestimating the damage will be 100′s of millions of dollars. Guess who will be picking up the failure. The American Taxpayer.

  3. Steve S says:

    I can’t see how the young cannot be considered key to the success of this program. regardless as to whether older people are healthy or not, I know from experience that most older people will consume more healthcare resources than most younger people. It’s just common sense.

    And Edward H makes a good point that I have also observed in my professional life and in my dealings with helping people enroll.

    I share a lot of info on health insurance exchanges on Twitter as ShimCode See http://www.twitter.com/shimcode

  4. killroy71 says:

    There is already real-world experience of this, in Washington State’s reform of the 1990s. It had guaranteed issue without the mandate to buy (and low penalties in ACA might effect the same behavior) – Sick people bought in while many healthy people stayed away. Premiums increased, which drove out more healthy people, but still weren’t sufficient to cover claims.

    It took 5 years for the death spiral to fully take effect – insurers paid out over $100 million more in claims than they collected in premium. They left the market and it became virtually impossible to buy individual coverage.

    The governor brokered a deal that got a few insurers back into the market, with modified guaranteed issue – the costliest 8% of applicants went into the state’s high-risk pool, supported by levies against insurers.

  5. Erin says:

    The relative premiums graph on the actual report on KFF site makes this story much more understandable. Maybe they would share? What you can see on the graph is that when you say “young adults are paying more than there average medical costs” it’s more, but not whole lot more. Since they’re not paying terribly more than they cost, we don’t need them terribly much to sign up.

  6. Kelly says:

    In my view, only an idiot takes the risk of not being insured. My spouse and I would never consider not having health care for ourselves and our two children ages 11 and 14. We are all healthy. Yet, we are a very active family. We take vacations and we love to go snow skiing, jet skiing, hiking and biking. Although not risky behaviors, accidents happen! With a family, who in their right mind would not be insured, especially if it’s reasonably affordable. From what I’m seeing, the prices on the health exchange are very reasonable. The best part is, there’s competition. We have never seen competition before Obamacare. Like I said, only a fool would not take advantage of buying health insurance on the exchanges. Young, old, rich, poor, healthy, not so healthy, everyone needs health insurance. One serious accident or illness could mean bankruptcy. Everyone needs to shop for insurance on the health exchange. It is the only rational thing to do. Avoiding it will only put you at risk!

  7. BA Smith says:

    Many complain about providing healthcare for the uninsured and under insured. In most cases these are working, voting individuals who do not receive insurance through their employer and have low paying jobs which makes purchasing insurance cost prohibitive.

    For the states that refuse to extend their Medicaid programs to include these people in the end they are still paying because when healthcare is needed it is sought in emergency rooms at greater expense with no reimbursement.

    Through the ACA the government will pay for the extension at 100 percent for three years and then at 90 percent thereafter. Politicians are willing to put their constituents at risk for the sake of trying to make the ACA fail. What kind of sense does this make and what has happened to us as human beings?!

  8. Max Herr says:

    Here in California, there is no way to know which applicant is health and which is not because there is only one question in the application that is remotely “health oriented” — it asks, “Have you had any medical expenses in the past three months.” That, most assuredly is designed to see how many Medi-Cal applicants will required some form of retroactive payments to healthcare providers.

    The statement in the article about how “the key is to recruit enough healthy members no matter what their age” is a joke, and could be viewed as discriminatory. On the opposite side of that coin is the same old adverse selection issue — don’t accept too many unhealthy persons.

    Then you have a commenter, like Kelly above, who says, “In my view, only an idiot takes the risk of not being insured.” Well, Kelly obviously has the ability to pay premiums, and has probably never been on the wrong side of unemployment. Plenty of people understand the risk of not being insured — their only problem is affordability. If you have no money, what can you afford?

    The whole PPACA was an ill-conceived idea. Instead of addressing the singular problem of how do you provide healthcare to 40-50 million uninsured persons, they went an overturned the entire apple cart. And the solution they came up with, still leaves 20-30 million uninsured persons at the end of the first ten years. So, effectively, nothing much will be accomplished other than the government having stuck its nose up the hind ends of 275,000,000 people. With that, I don’t think I need the colonoscopy my doctor has recommended — all that will be found is a bureaucrat looking for some loose change.

  9. Max Herr says:

    Let me add one more comment.

    In trying to cope with the millions of uninsured in America, the simplest solution would have been the equivalent of the “Assigned RIsk” auto insurance pools each state has created. Insurers must accept persons in that pool according to their market share. That same concept would work in health insurance. Instead of providing premium tax credits to all individuals with incomes up to 400% of FPL, the government would only have to subsidize the cost to insure this 15% of the American population.

    Oh . . . wait! There’s a problem with that! It means giving money to insurance companies — those evil, profiteering entities.

    As an insurance agent, I find the stain being placed on the “profitable”health insurance companies of America reprehensible. If it weren’t for the insurance companies and their profits, we would not have the finest healthcare system in the world.

    Have costs worked themselves out of control? Absolutely! Do they need to be contained? Probably. But does anyone actually recognize the source of all this trouble to begin with? Government. The Medicare and Medicaid systems fail to compensate providers with sufficient funds to make treating these individuals sustainable. As a result, physicians have been found to overuse diagnostics and other billiable procedures in an effort to prop up their paychecks. Hospitals charge higher rates to cover the poor reimbursements for services rendered to seniors and the poor.

    The government is largely to blame for all this, not the insurance companies and not the hospitals or the physicians alone. If it weren’t so, there would not be a $127 TRILLION unfunded liability for Social Security, Medicare, and the Part D prescription drug plan that no one wants to discuss or confront. But it is plainly there for all to see at http://www.usdebtclock.org Look in the lower left corner where all the numbers are red and spinning upward uncontrollably.

  10. Katie E. says:

    Max Herr: I appreciate your insight. I have friends and relatives who are insurance brokers and they’re feeling unnecessarily targeted as well. I’ve worked in healthcare research for only a short time now, but it’s been shocking to me throughout this entire ACA debacle how no one has really stopped to consider the enormous effect this is having on employees of the healthcare industry. Uncompensated care is a huge issue: it’s severely hurting our nation’s hospitals and health systems, and I think hospital execs are seeing what the rest of us aren’t: that health insurance is only getting pricier with this new law and people aren’t going to want to pay their nasty high premiums, and they’ll either find ways to forgo treatment, or forgo payment. Either way, hospitals are getting screwed. I don’t want my local hospitals to have to cut corners, or God forbid start laying off medical staff in order to make ends meet. When hospitals and doctors get so screwed over that they’re unable to do their jobs, or worse, start losing their jobs, everyone who thought this law was a great idea is going to be kicking themselves.

  11. Sarah says:

    Katie E,

    Since the overwhelming problem of uncompensated emergency room care is not new to hospitals and since it was an overwhelming problem long before Barack Obama became President, what solutions existed prior to 2010? As I understand it, the Affordable Care Act (ACA) legislation was created in Congress with great participation from the lobby groups for hospitals, doctors, medical device manufacturers and insurance companies. As I understand it, the lobby for hospitals agreed to the legislation with the understanding that Medicaid would be expanded and more Americans would be insured. Since the Supreme Court ruled that states are not required to expand Medicaid, about 25 states refused to participate in the traditional Medicaid Expansion. The traditional Medicaid Expansion was crucial to the survival of hospitals. Medicaid Expansion got more Americans insured. In my state of Pennsylvania, the governor has decided to refuse to expand traditional Medicaid. Pennsylvania hospitals were shocked at the governor’s decision. They feel betrayed! The ACA was written to protect hospitals by getting more Americans insured through the Medicaid Expansion. The hospitals agreed to participate in the ACA, only if more people got insurance. How can the ACA be blamed for the poor decisions made by certain Republican governors?

  12. Reggie says:

    To all the naysayer right wing wackos here, in case you haven’t heard, Obamacare is the law! It isn’t going away any time soon. Cry and moan all you want, like basic Medicare, like Medicare Part D, like Social Security, like Medicaid….Obamacare is here to stay! Get use to it! Get over it! Be thankful that it’s a copy of Mitt Romney’s Romneycare, be thankful that it’s an exact copy of the mandate idea originally proposed by the Heritage Foundation in 1989, it’s here to stay! Get it? If you don’t like it…TOUGH BEANS! Even with the disaster rollout, 1.2 million have enrolled already and they predict a deluge of enrollees in 1Q2014. For way too long, too many Americans have been forced to participate in a rigged game where health insurers controlled the healthcare insurance market and the rules changed when your health changed. Finally, Obamacare levels the playing field and forces insurers to all play by the same exact rules. No more gimmicks. No more cancelations. More transparency. More truth. Hopefully, these new rules will force the insurance shysters out of business once and for all.

  13. patty says:

    Insurance companies have ruined America’s healthcare system in the past and they will continue to do so in the future. They constantly interrupt the relationship between the doctor and the patient and have been the most responsible for unexplained rationing. They deny claims without explanation and they constantly refuse to pay for legitimate claims until they are threatened with legal action. If we eventually toss the current private insurance system and go to a single-payer government run system, it will be because the insurance companies have created such a mess that nobody knows which end is up.

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