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Affordable care act does not benefit young people

By Thomas Dilling
On April 26, 2012

Two years after its passage, the Patient Protection and Affordable Care Act, dubbed "Obamacare," is currently awaiting a decision by the Supreme Court on the constitutionality of its provision that every American be required to purchase health insurance. If the provision is struck down, either the entire bill will be struck down or more likely, the Justices will determine portions of the bill that are dependent on there being mandated coverage and strike those down. Many of these provisions, as I will explain, are counter to the interests of young people and ought to be a reason for young people to oppose the law.

Healthcare spending follows what is called a pareto distribution - 20 percent of people make up 80 percent of the costs and 5 percent of people make up 50 percent of the costs. Young people disproportionately make up the low-cost or no-cost individuals in that distribution. In fact, out of the 5 percent of people who make up 50 percent of costs, only 13 percent of them are under 35, despite 50 percent of the population fitting into that age group. The natural age distribution of non-Medicare medical costs, according to Oliver Wyman, is five to one. That is, the oldest non-Medicare age group normally consumes about five times more healthcare services than the youngest age group.

However, in 2014, the Affordable Care Act is set to massively alter the underwriting process to eliminate or regulate many factors from consideration in the determination of premium pricing. One such regulation is that the age-rating ratio will be mandated to become 1:3. This means that the oldest non-Medicare age group can only be charged three times as much as the youngest age group despite them consuming five times as much in health services. In effect, this is a subsidy for older people at the expense of younger people, and will necessarily increase the premiums of young people. Oliver Wyman projects that the effect on premiums for ages 18-24 will be a 45 percent increase.

As many have probably heard, the Affordable Care Act also allows what it calls "adult-children" (young adults up to age 26) to remain on their parent's plan if they aren't employed and are uninsured. For these people, parents will see the increased premiums instead, but young people with jobs or young people over the age of 26, are facing increased premiums. The individual mandate requirement, if ruled as constitutional, forces young people to pay the increased premiums. Without the mandate, the increased premiums would potentially be unsustainable because of adverse selection. That is, healthier young people who aren't seeing the benefit of insurance to justify the cost will be more prone to drop out of the market, further increasing costs to the remaining young people, creating a cycle.

According to Milliman, even if the individual mandate is upheld, requiring young people to pay increased premiums, there will still be another form of adverse selection in which young move into "catastophic" plans that offer less benefits at a lower cost, allowing the individual to self-insure for more routine care.

Furthermore, the upcoming 2014 regulations on underwriting not only perverse the age-pricing of insurance but also eliminate the ability to price insurance based on medical status or gender. This will result in even more perverse pricing for men, who are the disproportionately younger sex, as well as distribute the costs of select higher health risk participants to the entire pool, further increase costs for most. These too lead to adverse selection of the disaffected individuals, just as with age-pricing limits.

Any provision that increases the cost of premiums even if not specifically targeting young people also increases the price of insurance, which disproportionate burdens young people who are, on average in lower paying jobs. One such provision was the elimination of maximum lifetime benefits in 2010, increasing the cost of those insurance plans, which are held by 59 percent of workers and 89 percent of individually insured, according to Kaiser. Higher insurances prices have a decrease in wages which are forced with an individual mandate and result in higher dropout rates without one. These effects of the individual mandate should be reconsidered regardless of the constitutional challenge result. 

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