Concerns over young buyer "sticker shock" and adverse selection associated with new 3:1 age rating rules have been largely overblown, according to an Urban Institute study finding that premium subsidies will offset increases for many young insurance consumers.
In "Why the ACA's Limits on Age-Rating Will Not Cause 'Rate Shock,'" Urban Institute researchers Linda Blumberg and Matthew Buettgens modelled average premium costs for different age categories under the 3:1 ratio taking effect in 2014 and the 5:1 ratio that most states permit currently.
Under the 3:1 rating, 21- to 27-year-olds -- the demographic thought most likely to ignore the individual mandate if costs are too high -- could see average annual premiums increase $850 than under the 5:1 ratio. People between the ages of 28 and 56 likely won't see much difference either way, according to the study, while people ages 57 to 64 will likely save an average $1,770 annually under the 3:1 ratio.
That largely affirms the critique that the 3:1 ratio will bring young consumers higher premiums and older consumers lower premiums -- except, as Blumberg and Buettgens show, the federal government will likely be covering the increase for most young individual insurance buyers, to the extent that many may not notice it.
Because many young people without employer-sponsored insurance are earning within 300 percent of the federal poverty level, most 21- to 27-year-olds buying individual insurance will be doing so through public exchanges, with premium subsidies capping what they pay at a maximum of 9.5 percent of annual income.
"The vast majority of young people will have their out-of-pocket costs protected, and the subsidies will cover the difference," said Blumberg, a health economist.
Blumberg and Buettgens estimate that roughly 1.4 million 21-27-year-olds will be buying individual health plans in 2014 and that 92 percent of them will have incomes under 300 percent of the federal poverty level, remaining shielded from any rate shocks.
Another reason young people won't likely face drastically higher premiums, Blumberg said, is that most exchanges are set to carry relatively inexpensive catastrophic plans open to people under 30.
Young individually insured consumers buying coverage through exchanges would both have their costs offset by the federal subsidies while also improving the financial and physical health of the greater exchange risk pool. As a result, Blumberg thinks exchanges and insurers should step up HIX marketing efforts.
"From my perspective, if the carriers are very concerned about adverse selection, they ought to think about education and outreach," she said.