Rate shock by numbers, part deux: The data doesn’t spell glory or doom for the exchanges

by Adrianna McIntyre and Josh Fangmeier 

This continues our analysis of data related to the “rate shock” debate lately rocking the blogosphere. To see our initial post, click here

I know we have charts—and charts are supposed to be the answer to everything—but like I said yesterday, this is messy. Is there reason to be concerned about rate shock on the exchanges? Sure. Am I entertaining optimism anyway? You bet.

To clarify the rate shock question that matters, it’s this: will premium increases, even with subsidies, discourage enough young adults from buying insurance that the risk pool skews old and unhealthy, resulting in a cycle of rising rates?

The White House says that 2.7 million young and healthy Americans need to enroll in the first year to keep premiums affordable. 

I have no idea where the Administration pulled that figure from, but to understand whether it’s a reasonable goal, you have to develop an idea of what the exchange-eligible population will look like. Using the same data on childless young adults that we explained yesterday—go catch up if you missed it!—we defined “exchange-eligible” individuals as those above 138% FPL (the threshold for exchange eligibility in states that expand Medicaid) who either had non-group insurance or were uninsured. Mind you, we haven’t included data for young adults with kids, nor does this capture information about unaffordable or low-value employer-sponsored insurance, so these numbers don’t tell the whole story.

projeligible

In each bar, the lightest segment is 19-25 year olds, the medium covers 26-30, and the darkest captures 31-35. The vertical axis is number of individuals. In total, we calculate about 6.2 million “eligible” childless adults are under 35. Remember, income is the key variable when it comes to subsidies determining how affordable exchange plans are; they’re offered up to 400% of the poverty line, depending on how expensive a plan is. Almost 70% of our population of interest falls below 300% FPL. This seems to bode well for participation—except it’s not so straightforward. (Is anything in health policy, ever?)

Before you presume to prophesy the fate of Obamacare, try answering the following questions:

How many kids under 26 are going to stay on Mom and Dad’s plan? The last post touched on this superficially, but it’s hard to overstate the importance of extended dependent coverage. Right now, “eligible” 19-25 year olds are the largest cohort of childless young adults who would benefit from subsidies on the exchanges: fully 45% of them are between 138-200% FPL. But it’s probably more cost-effective for them to stay on their parents’ plan as a dependent.

A plan has to cover kids to be subject to the requirement—but plans aren’t mandated to cover kids—so some twenty-somethings won’t benefit and will find their own insurance on the exchange. Other young adults will tag along when their parents purchase a plan on the exchange (if they’d previously been uninsured or had nongroup coverage). But many will join their parents’ employer-sponsored plans, drawing young adults away from the exchanges. If we eliminated 19-25 year olds for the sake of argument—just pretend none enter the exchanges—the number of “eligible” childless young adults drops to about 4 million. That starts to make the Administration’s first-year goal look lofty, so the answer to this question is wildly important.

rateshocksmall

How many people under 30 are going to take advantage of catastrophic plans? There’s a quirk about catastrophic plans offered to the “young invincible” set: their risk pools are separate from the “metal” plans (bronze, silver, etc). This means that they don’t do anything to stabilize premium prices—in effect, we can’t count these individuals toward the 2.7M target. But not all is lost.

Because catastrophic plans aren’t subsidy eligible, at some incomes it’s actually cheaper to purchase more comprehensive coverage. For reference, the catastrophic plans on California’s exchange averaged out at $179/month. Using Kaiser’s calculator, I determined that a “Bronze” plan (at maximum out-of-pocket premium rates) is cheaper up to an income of about $31,000 (270% FPL). You’ll notice in the graphs at right that a majority of the eligible adults we looked at fall below 300% FPL. Good news for the exchanges? Could be.

How many people below 138% FPL will enter the exchanges? Let me clarify straight off that I think states foregoing Medicaid expansion are foolish (on a quantifiable financial level, if you don’t buy the normative argument). But it offers a backward silver lining for exchanges: there will be more people receiving subsidies to purchase private insurance, because the threshold goes down to 100% FPL. Josh and I didn’t tease apart the 100-138% FPL demographics, but judging by data we looked at yesterday—remember those red bars?—it seems likely that the income band would capture a fair number of young adults. Once states finalize Medicaid expansion decisions, this should actually be calculable.

It’s funny, really: the ACA is good at making insurance affordable for young adults—and the exchanges will suffer because of it.  Here we have a classic case of the law of unintended consequences. Medicaid is the least burdensome from a cost-sharing perspective, and the program’s expansion will extend coverage to millions of uninsured childless adults below near/below the poverty line. The under-26 provision will keep many young adults on their parents’ employer-sponsored insurance. The catastrophic plans will be a sensible financial decision for some in the under-30 set, but do nothing to stabilize the broader market. Each of these policies is fantastic for young adults, but they also keep them out of the exchanges’ risk pools And it’s not easy to predict how people will take advantage of them, making the “rate shock” question a tough nut to crack.

I don’t pretend that I can predict the behavior of 6.2 million people based on some internet-generated 2013 premiums. Between yesterday and today, the numbers tell us quite emphatically that lots of young adults—most childless individuals under 35—are poised to benefit from the Affordable Care Act. What they don’t reveal so easily is how many will find themselves on the exchanges in 2014.

That matters. How much? We should continue having this discussion—but it would be irresponsible to keep talking without considering the data.

Footnotes

1. There are other mechanisms to help manage the risk pools on the exchanges: reinsurance, risk adjustment, and risk corridors, together known as the “three R’s”, in the jargon. More info on those here.

2. Speaking of the data, here it is (Google doc). For the methods, see this PDF (also Google doc). 

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Adrianna is a graduate student in public policy and public health at the University of Michigan. Follow her on Twitter at @onceuponA.

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