Young Adults and the Affordable Care Act

Like all other individuals, young adults will be required by federal law to purchase health insurance with the specific benefits the federal government says they must have, regardless of whether they want to pay for them and regardless of whether those benefits are useful to them. For instance, young single males will be required to purchase a plan that has maternity benefits and well-baby coverage.

Benefits of Reform

Young adults up to age 26 (whether married or unmarried) are now able to enroll in their parents’ health plans. Currently, this option is limited to children who do not have access to an employer plan. However, beginning in 2014, children will be able to join or stay on their parents’ plan even if they have access to an employer plan of their own.

Costs of Reform

Most young people are healthier and have lower expected costs than older adults. For example, people in their 20s today typically face premiums that are only one-fifth or one-sixth as high as people in their 60s. The likelihood of ill health, and therefore the cost of health insurance, tends to rise with age, but fortunately so does income. People in their 50s and 60s typically pay higher premiums, but their higher incomes allow them to do so.

Regulations that take effect in 2014 will dramatically change things, however. Insurers will be required to accept all applicants at rates that are not adjusted for health status. Also, premiums can be adjusted for age, but the highest premium can exceed the lowest one by no more than a ratio of three to one. This means that young adults will face premiums that will be much higher than their expected cost so that older, less healthy adults can pay premiums that will be much lower than their expected costs.

The result: Young adults will have to pay a lot more for their coverage, perhaps even double or triple their current premium. For example, studies based on actual insurance claims data reach the following conclusions.[2]

• The premium for a healthy 25 year old in California would more than double—rising from $107 per month to $221.

• The family premium for a 40 year old husband and wife with two children in California would rise by 42 percent—from $536 per month to $763.

• By contrast, a 60 year old, less healthy couple living in California would see a drop in their premiums of about 41 percent—from $1,979 to $1,165.

Exceptions for Young Adults

Adults under the age of thirty will have access to health plans that have fewer mandated benefits than the standard plans. These plans will be allowed to have higher deductibles and higher cost-sharing, but the out-of-pocket exposure will be no higher than HSA limits (currently $6,050 for an individual and $12,100 for a family).[2] Presumably, these plans will have lower premiums. They will not qualify for premium subsidies in the exchange, however.

For more on the Affordable Care Act, please see my Independent Institute book, Priceless: Curing the Healthcare Crisis.

Notes:

1. “The WellPoint Revelation,” Wall­ Street ­Journal, October 28, 2009; “Healthcare Reform Premium Impact in California—December 2009 Addendum,” Wellpoint, December 2009, http://www.wellpoint.com/prodcontrib/groups/wellpoint/@wp_news_research/documents/wlp_assets/pw_d014969.pdf.

2. Eric Johnson, “IRS announces new HSA limits for 2012,” BenefitsPro.com, May 23, 2011, http://www.benefitspro.com/2011/05/23/irs-announces-new-hsa-limits-for-2012.

[Cross-posted at Psychology Today]