Insurance Analysts: Obamacare to Increase Out-of-Pocket Premium Costs, Especially for the Young

A new report, authored by Kurt Giesa and Chris Carlson, has been published in the latest issue of Contingencies, the American Academy of Actuaries’ bimonthly magazine.

Their analysis focuses on Obamacare’s community rating provision, the piece of the law that forces young people to pay dramatically more for health insurance in order to partially subsidize the cost of insurance for older Americans, according to Forbes.

The conclusions:

[...]Giesa and Carlson estimate that 80 percent of Americans below the age of thirty in the individual market will face higher premiums, despite subsidies. “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.”

G&C write: 

We estimate that almost 80 percent of those aged 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 will see higher premiums even after accounting for premium assistance.[...]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.)

Here's Forbes on what is likely to happen:

The likely scenario is that young people will defy Obamacare’s individual mandate and go without health insurance, knowing that Obamacare guarantees they can sign up for insurance after they fall ill. “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.”

Obamacare is counting on youth insurance payments to subsidize the cost of insurance for older individuals. If the youth opt out, which makes a lot of sense for them to do, premiums for older individuals will soar.