Tuesday, May 13, 2014

Obamacare's Youth Enrollment Problem

While Obamacare seems to be avoiding a death spiral (at least for now), it still is not succeeding in attracting enough young adults, also referred to as "young invincibles," to enroll into Obamacare. In spite of making concerted efforts to attract 18-34 year olds to sign up for Obamacare, according to the most recent numbers from the Human and Health Services, only 28 percent of the the eight million that have reportedly enrolled are young adults. This is a far cry from the 40 percent that the Obama administration wanted to enroll. Proponents of Obamacare have made Obamacare sound like such a good deal for young adults, so what gives?

First, we have to ask ourselves why youth enrollment is desirable. The reason why young people are the cause of attention is because young people tend to be healthier, which helps diversify the risk pool. Aside from that, one of the features of Obamacare is the limit of age rating in health insurance from 5:1 to 3:1, which means that insurance companies are not given leeway to assess actuarial risk. Not charging more elderly individuals the premium amount based on their actual risk to the health care exchange means that young adults will carry a disproportionate burden of the risk pool, which is more than their costs would have been otherwise. If the cost of buying insurance through the health care exchanges created by Obamacare ends up being more expensive than foregoing health insurance for enough young adults, then the situation creates a death spiral. That is why the intuition about Obamacare ends up being that Obamacare is a raw deal for young adults because it will discourage young adults from buying insurance through Obamacare.

Although there is a correlation between age and healthiness, one can argue that being young does not automatically mean being healthy. There are middle-aged individuals and even a few elderly individuals who have no real health problems to speak of, which means the death spiral scenario can be overblown. The Kaiser Foundation seems to think along these lines. Rather than assume the "death spiral" scenario, they only predict that a premium increase would occur. For argument's sake, let's assume that the Kaiser Foudnation, which is by no means conservative or Right-leaning, is correct that there would not be a death spiral, but only a "slight increase" in overall premiums (keep in mind that this does not include what the price increase would be for young adults, but just Americans in general). The problem with that is that one of the promises made by the Obama administration to force Obamacare down America's throat is that health care premiums would actually decrease.

Projections of youth enrollment has been steady thus far, and as projections stand, there is currently no worry about an adverse selection death spiral happening. However, this does not mean that Obamacare is in the clear.  The Kaiser Foundation's "worst-case scenario" assumed that the youth enrollment rate only dropped to 25 percent. What would happen if it dropped below that point? There could be a major influx of elderly or ailing individuals. Young individuals could end up dropping coverage because premiums continually rise and they get sick and tired of propping up the insurance pool. While I don't think Obamacare is currently in danger of a death spiral at this time, I still think that Obamacare still needs to keep its focus on enrolling healthier individuals because it is still too soon to say what the net change in premiums for young adults will be and how it will affect the healthcare marketplace, particularly how it affects workplace health insurance. In the meantime, if Obamacare is going to remain the law of the land, the least we could do is create reforms to the law to it in order to make it less of a pain.

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