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Insuring Younger Adults Through the ACA’s Marketplaces: Options to Expand Enrollment


The future of the Affordable Care Act (ACA) is highly uncertain. Yet whether or not the law is repealed, having young adults participate in the individual health insurance market remains critical to achieving affordable premiums. This is particularly true if policymakers wish to retain reforms such as the ban on denying coverage to people with preexisting conditions. Since young adults tend to be healthier and thus cheaper to insure, if they aren’t participating in large enough numbers, and insurers can’t deny coverage or charge sicker people higher premiums, premiums could spike for everyone.

In this post, we examine two proposed approaches to encourage enrollment among younger adults in the context of the ACA: 1) charging older people more relative to younger people and 2) enhancing premium tax credits for young adults. Our analysis found both proposals would have similar effects on total coverage, but raising the limit on how much more insurers can charge older people would entail greater federal spending—due to substantially higher spending on premium tax credits—and coverage loss for older adults. Notably, reducing coverage among older adults, who are at greater risk for health problems, could raise costs of providing uncompensated care for hospitals, doctors, and other health care providers.

Two Proposals

Under the ACA, individual-market insurers are prohibited from charging older adults more than three times as much as they charge younger adults. If this so-called “3:1 rate banding” regulation were loosened to 5:1, insurers would be able to charge older adults up to five times as much as younger adults, thereby decreasing premiums for younger enrollees while increasing them for older enrollees. Some insurers and state regulators have proposed 5:1 rate banding as a way of encouraging young adults to enroll, and it is part of leading repeal-and-replace proposals, including those offered by Rep. Ryan and by Sen. Burr, Sen. Hatch, and Rep. Upton.1

The second proposal we examined—which has been discussed by the Obama Administration—would provide young adults whose incomes qualify them for subsidies with larger premium tax credits than they currently receive under the ACA.2  We modelled an enhanced tax-credit scenario that would add $50 per month for eligible adults between ages 19 and 30, and smaller amounts for individuals between the ages of 30 and 35.3

To assess the impact of both 5:1 rate banding and enhanced tax credits, we used the RAND COMPARE microsimulation model, an analytic tool that uses economic theory and data to estimate the effects of health policy changes.4  In our modeling, other aspects of the ACA remain in place, such as the individual mandate and Medicaid expansion.5 We compared both proposals to estimated outcomes under current law.6

Impact on Enrollment

We found total health insurance enrollment is similar in both scenarios, with 252.8 million insured under 5:1 rate banding and 252.5 million insured under enhanced premium tax credits (Exhibit 1). Compared with the unmodified ACA, individual market enrollment increases by 2.5 million with 5:1 rate banding, and by 1.1 million under the enhanced tax credits proposal. About half of the boost in individual market enrollment under the 5:1 scenario is driven by young people switching from employer coverage to individual market coverage because of the cheaper premiums. In contrast, employer coverage is largely unaffected under the enhanced tax credit scenario, because young adults with affordable employer coverage cannot receive the credit. As a result, the two policies have similar effects on overall coverage.

Both of the proposed modifications affect the age distribution of individual market enrollees (Exhibit 2). Under 5:1 rate banding, the number of enrollees under age 35 would increase by more than 3 million; for the enhanced tax credit proposal, enrollment for this age group increases by 0.9 million. However, 5:1 rate banding results in a decrease of 0.7 million enrollees between ages 47 and 64, who drop out because they are unable or unwilling to pay higher premiums under the policy. In contrast, enrollment among older adults is largely unchanged in the enhanced tax credits scenario.

Impact on Premiums

We also modeled the impact of the policies on individual-market premiums (using premium amounts without tax credits). The 5:1 rate banding policy reduces premiums for 21-year-olds by approximately 22 percent, while increasing premiums for 64-year-olds by 29 percent. In general, people under age 47 face slightly lower premiums under the 5:1 rate-banding policy relative to current law, while people age 47 and over face higher premiums.

While those eligible for tax credits s are mostly insulated from the higher premiums, other older adults will experience higher premiums in the 5:1 rate banding scenario.7  In contrast, the enhanced tax credit approach increases the value of the tax credits for young adults, drawing more young people into the individual market. This increase in young adult participation then leads to a small (0.6 percent) reduction in unsubsidized premiums for all age groups relative to current law.

Impact on Federal Deficit

Finally, we evaluated the impact of the two proposals on the federal deficit (Exhibit 4). Federal spending on tax credits and cost-sharing reductions (for out-of-pocket expenses for qualifying enrollees in silver plans) increases by $11 billion under 5:1 rate banding, primarily because the cost of federal tax credits increases as benchmark premiums for older adults rise and more of these enrollees qualify for subsidies. (Each enrollee’s tax credit is calculated by subtracting a required income contribution from a benchmark premium, which varies based on the individual’s age.) As a result, the federal government shoulders much of the cost of the premium increase for older adults. In contrast, increased federal tax-credit spending in the enhanced tax-credit scenario is a more modest $3.7 billion.

Coverage Reductions, Greater Increase in Federal Spending for Older Adults Under 5:1

A comparison of the 5:1 rate banding and enhanced tax credits shows they have similar effects on total insurance coverage, but different effects on individual market enrollment and premiums. Under 5:1 rate banding, we estimate increased individual market enrollment among people under age 35 but lower enrollment for older individuals. These patterns reflect stark shifts in premiums, including declines for younger enrollees and increases for older enrollees. The higher premiums for older adults lead to substantially higher premium tax credit spending, increasing the federal deficit by $11 billion.

The enhanced tax credits, on the other hand, modestly increase individual market enrollment among adults ages 19 to 34 without adversely affecting older adults, with a lower impact of $4 billion on the federal deficit.

The finding that enhanced premium tax credits may have a smaller budget impact than 5:1 rate banding is striking, and may be a useful insight as policymakers consider alternatives to the ACA. An additional benefit of the enhanced tax credit approach is that it does not lead to higher premiums and reductions in coverage for older adults. Reduced coverage among older adults, who are at greater risk for health problems, under the 5:1 approach could likewise raise costs for hospitals, doctors, and other health care providers, who will see more uncompensated care.


1 See for example M. Morrisey, A. Rivlin, R. Nathan et al., “Early Assessment of Competition in the Health Insurance Marketplace,” Brookings Institution, 2015 (as of November 29, 2016: See also America’s Health Insurance Plans, “Factors Affecting Premiums in the 2017 Individual Exchange Marketplace,” (as of November 29, 2016: Five-to-1 rate banding was included in the Patient CARE Act, offered by Sen. Richard Burr (R-NC), Sen. Orrin Hatch (R-UT), and Rep. Fred Upton (R-MI) ( It is also an element of Rep. Paul Ryan’s “A Better Way” plan (

2 For example, see President Obama’s remarks:, and subsequent clarification from White House press secretary Josh Earnest:

3 We model a linear phase-out, such that 31-year-olds would receive an additional $40 per month, 32-year-olds would receive an additional $30 per month, 33-year-olds would receive an additional $20 per month, and 34-year-olds would receive an additional $10 per month.

4 A full description of the model is provided in the technical appendix.

5 We recognize that it is likely that Congress will repeal or significantly modify other aspects of the ACA. However, without specific details on how a repeal would be likely to unfold, we have left broader repeal-and-replace reforms for exploration in future analyses.

6 We do not model catastrophic plans in our analysis, given low enrollment in these plans to date. For example, in March 2016, CMS reported 67,000 catastrophic plan enrollees, compared with 11.8 million total marketplace enrollees. See

7 The benchmark plan is defined as the second-lowest cost silver plan available to the individual.

Publication Details



E. Saltzman and C. Eibner, "Insuring Younger Adults Through the ACA’s Marketplaces: Options to Expand Enrollment," To the Point, The Commonwealth Fund, Dec. 16, 2016.