Since the Patient Protection and Affordable Care Act marketplaces opened for enrollment, the importance of getting young, healthy people to sign up for coverage has been a point of concern.
HHS and Moody's Investors Service have predicted the extension of health plans that aren't compatible with the reform law's coverage requirements could lead younger people in good health to stay away from the exchanges, which would result in a negative effect on the exchange health risk-pool. Based on the same reasoning, health insurer Humana has predicted a more adverse risk mix for people getting coverage through the exchanges.
The most recent enrollment numbers from HHS confirm the population of people enrolled in PPACA health plans so far skews older. Of the nearly 2.2 million people who had selected health plans through the PPACA state-based and federal marketplaces by Dec. 28, only 24 percent are between the ages of 18 and 34.
Without an adequate amount of "young invincible" enrollees, the total amount of premiums health insurers collect for exchange plans will be less than the total healthcare expenses of exchange enrollees, and insurance companies could increase premiums to compensate. However, according to a report from Kaiser Family Foundation analysts, a premium "death spiral" is unlikely to occur, even in the worst case scenario. Here are three key observations from the report.
1. The marketplaces need to enroll young adults in about the same proportion they represent in the pool of potential individual insurance market enrollees. Based on the Survey of Income and Program Participation, Kaiser Family Foundation analysts concluded that amounts to 40 percent.
2. If young adult enrollment amounts to only 33 percent in 2014, insurers' total costs for the exchange plans would be about 1.1 percent higher than premium revenues. The projection takes into account the fact that premium variations based on age are limited to a ratio of three-to-one under the PPACA.
3. If young adults aged 18 to 34 end up representing only 25 percent of enrollees, overall costs for insurers would be about 2.4 percent greater than premium revenues. Although this shortfall could significantly shrink insurer profit margins, insurers would still be expected to earn profits. A likely 1 to 2 percent increase in premiums in 2015 would be well below the point of triggering a "death spiral," or a scenario in which insurers would need to substantially raise premiums, which would subsequently make it even less likely that young, healthy people would enroll.
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