The participation of young adults in the Affordable Care Act’s health insurance marketplaces has received considerable attention in the policy community and the media over the past few months. At issue is whether men and women ages 19 to 34—a group that historically has been uninsured at disproportionately high rates but is generally healthier than older adults—will enroll in marketplace health plans at a rate high enough to ensure that the marketplaces are a success.
There is little consensus, however, as to the level of young adult participation that is necessary to achieve balance in state individual market risk pools, or how important that is compared with the health status of enrollees irrespective of age. If participation by young adults is less than what insurers expected when they set premiums for 2014, what are the implications for the stability of the marketplaces and insurance premiums in 2015? In late January 2014, The Commonwealth Fund invited a group of health insurance actuaries, health plan representatives, researchers, and federal officials to discuss these and related issues. (See participant list.) This report provides an analysis of the meeting discussion. It is not intended to broadly represent the views of other experts or those of the insurance industry overall.
Young Adult Participation Less Important Than Health Status of Overall Enrollment Pool
Actuaries and researchers both agreed that while the participation of young adults in the marketplaces is important for stability of the marketplaces and 2015 premiums, it was, and will continue to be, one of many different factors that affects premiums of marketplace plans. In fact, young adult participation is not even the most important factor: health plan actuaries view health status—which determines what the likely use of heath care services will be—for all age groups as being more important in their pricing decisions.
In setting premiums, some health plans develop their own projections of young adult enrollment based on modeling of expected behavior under the health reform law’s coverage provisions and the individual mandate to have coverage. This means that insurers’ gains or losses for 2014 and the effect on 2015 premiums depend on how actual experience differs from what insurers expected. In other words, there is no single right percentage for young adult participation.
The young adult enrollment rate is less important than health status of all enrollees because carriers can still price an individual’s policy based on his or her age within the law’s three-to-one age bands. In other words, carriers can charge older adults as much as three times what they charge younger adults. While this gives less room for pricing variation than most states allowed prior to 2014, insurers can nevertheless still make adjustments to premiums based on age. Thus, even if enrollment among young adults is less than projected, it will potentially have less of an effect on insurers’ gains or losses, according to the meeting participants, than will enrollment that turns out to be less healthy than expected. This is because insurers can no longer charge people premiums based on their health.
Health plans will need to file premiums in the second quarter of 2014 for the 2015 plan year that starts next January. Because open enrollment in the individual market and marketplaces ends on March 31, health plans will have, at most, three months of claims experience on which to base their premiums. To the extent that plan actuaries project that their 2014 premiums are less than adequate for 2014 enrollment, they will likely make an adjustment to their assumptions about plan risk pools in 2015 in order to ensure that 2015 premiums are at a sustainable level.
Several Factors Will Limit Insurers’ Losses and Premium Rate Increases
Meeting participants were in agreement, however, that several factors would 1) limit losses and/or 2) temper premium increases in 2015. Factors that might limit losses include the ability to price based on age, and the Affordable Care Act’s risk-sharing programs, which limit high-cost claims and offset insurer losses. In addition, a majority of enrollment in large insurance plans that comply with the law’s standards may well consist of existing customers, if those customers choose to stay with their carriers. This group’s health status is known to carriers, and, since its members were previously charged premiums based on their health (before the law’s 2014 reforms went into effect), they tend to be healthier than average.
The degree to which premiums increase this year is expected to be tempered, among other factors, by the health reform law’s premium rate review provision, which requires health plans to justify premium increases of 10 percent or more, and the medical loss ratio requirement. This latter provision requires that plans spend a set percentage of their premiums on medical care, as opposed to profits and administrative expenses. Competition in less-concentrated markets may also temper price increases.
Health policy analysts conclude that lower-than-projected enrollment of young adults may be one of many factors that lead carriers to adjust their premiums to levels that are considered adequate, but it will not be the most important factor. Nor will lower enrollment among young adults, even in the extreme, lead to a so-called premium death spiral and market failure.
In 2014, premiums for the marketplace plans came in lower than what had been projected by the Congressional Budget Office. According to the actuaries in the Commonwealth Fund meeting, this outcome largely reflected the extensive offering of narrow provider networks, the restructuring of provider payment, and benefit design. While some degree of uncertainty will continue in health plan rate-setting into 2015, actuaries and researchers predict a gradual stabilization of the marketplaces and greater certainty among health plans when setting premiums in 2016 and beyond. While some health plans may see increasingly narrow provider networks to restrain premiums in plans this year, other plans may view narrow networks as only one step in a long-term strategy of more fundamental changes to care delivery, including the spread of accountable care organizations.