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Obamacare sign-ups skew older, but don't sound alarm yet, experts say

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Guy Boulton/Milwaukee Journal Sentinel
January 20, 2014

News of the small percentage of young people who have signed up so far for health plans through the federal and state marketplaces brought ominous predictions last week of higher rates next year.

The predictions warrant some skepticism.

"At this point, everything is an educated guess, and maybe just a guess," said Dave Osterndorf, chief health actuary for consulting firm Towers Watson.

Many health insurers expected fewer young people to get coverage this year and built that expectation into their rates. Also, an array of factors go into insurance rates, and insurers will price their health plans next year based on what they expect the market to do in the future, not necessarily what happens this year.

"It is much too early, and the environment is too uncertain, to know if rates will go up," said Sara Rosenbaum, a professor of health law and policy at George Washington University in Washington, D.C.

Predictions of sharp rate increases stem from the federal government's reporting last week that only 24 percent of the people nationally — and 19 percent in Wisconsin — who signed up for a health plan on the state or federal marketplaces through December were 18 to 34 years old.

In contrast, 33 percent of those signed up nationally — and 45 percent in Wisconsin — were 55 to 64 years old.

An analysis by the Kaiser Family Foundation estimates that 40 percent of the potential market for health plans sold on the marketplaces being set up under the Affordable Care Act is people 18 to 34 years old.

But Thomas Buchmueller, a professor of risk management and insurance at the University of Michigan, said the percentage of young people who eventually sign up for coverage is not the right comparison.

"It's whatever the insurers were expecting," said Buchmueller, who also is a professor of business economics and public policy.
Cautious insurers

So far, the percentage of young people who have signed up for coverage is close to the projections Unity Health Insurance in Sauk City used to set rates, said Rob Plesha, an actuary and assistant vice president of the health insurer, an affiliate of University of Wisconsin Hospital and Clinics and the University of Wisconsin Medical Foundation.

Other insurers are just as cautious.

The Washington Post reported last week that WellPoint, the parent of Anthem Blue Cross and Blue Shield in Wisconsin, expects more older and sicker people to sign up for its plans the first year.

"Things aren't necessarily way out of whack with our expectations," Wayne DeVeydt, chief financial officer of WellPoint, told the paper.

Certainly, health plans in the individual market will need to attract a large percentage of people who are young and healthy for the economics of the law to work.

Insurers no longer can deny coverage to people with pre-existing health conditions or charge them more under the Affordable Care Act. That's one of the most popular provisions in the law. But it comes at a cost. Health plans must attract a large percentage of people who are young and healthy to offset the cost of insuring people who are likely to have high medical bills.

Requiring health insurers to cover people with health problems remakes the market for health plans sold directly to individuals and their families as well as for small employers.

Whether large numbers of young people would buy insurance, even if eligible for federal subsidies, has been one of the unknowns surrounding the law.

The law requires nearly everyone to have insurance or pay a penalty. But the penalty is small the first year: 1 percent of household income or $95, whichever is greater.

"The first year was sort of built as a grace period," Rosenbaum said.

The penalty increases to 2 percent of income or $325 next year and to 2.5 percent of income or $695 in 2016.

So someone with an income of $30,000 next year will have the choice of buying insurance or paying a $600 penalty and forgoing the federal subsidy available for an individual with that income.
Offsetting factors

The total enrollment in the health plans so far is disappointing, said Plesha, of Unity Health Insurance. But more young people are expected to buy health insurance next year.

And he and others noted that an array of other factors will come into play that could offset the low enrollment by young people so far this year:

-- People who are older, particularly those with health problems, were expected to be the first in line to sign up for insurance. Younger people are expected to sign up for coverage closer to the March 31 deadline. That's what happened in Massachusetts when the state launched its plan to expand insurance coverage — a plan that served as a blueprint for the Affordable Care Act.

-- Premiums still vary by age, with older people paying three times more than younger people. As a result, an analysis by the Kaiser Family Foundation determined that "the financial consequences of lower enrollment among young adults are not as great as conventional wisdom might suggest."

That analysis found that if only 25 percent of the people who enroll in plans are young, overall costs would be 2.4 percent higher than premium revenue. That would cut into insurers' profit margins — typically 3 percent to 4 percent — but would not result in large increases in premiums next year.

The law also includes provisions to help lessen the uncertainty insurers faced in pricing their health plans to account for the new regulations under the law. The provisions partially protect health plans from large losses if they attract a disproportionate number of people with high medical bills.

"They provide a cushion for insurers for the next three years," said Marjorie Rosenberg, a professor of actuarial science, risk management and insurance at the University of Wisconsin-Madison.

Rosenberg doesn't believe the low enrollment of young people will have much of an impact on rates next year.

Actuaries are conservative, she said, and her guess is they factored into their current rates that a smaller percentage of young people would sign up the first year.

"Actuaries have thought all this through," Rosenberg said.

Even so, Security Health Plan in Marshfield expected more young people to have signed up for health plans.

"We assumed a more even demographic mix," said Marty Anderson, the company's marketing director.

But he, too, said it is too early to make predictions about rates for next year.

The provisions that limit health insurers' downside risk will help.

"It should protect us in the first and second years," he said.

The market also will be different next year, Anderson said.

The HealthCare.gov website is expected to be working better and people will be more aware of the law. Also, people who renewed their health plans in 2013 will be coming into the market.

New competitors also could enter the market next year, increasing competition, Anderson said.

Many of the largest health insurers, particularly in southeastern Wisconsin, are not selling health plans on the marketplace, opting instead to see how the first year played out.

The Urban Institute noted that competition could help check future rate increases, although this may not hold true in markets dominated by one or two insurers.

Even if fewer young people buy health plans this year than projected, actuaries will set future rates based on what the market will look like next year and subsequent years, said Gary Claxton, a vice president at the Kaiser Family Foundation.

That won't be easy. The deadline for enrollment is March 31, yet health insurers will have to file rates for 2015 at the end of May.

"They are going to have to make guesses again," said Rosenberg, of UW-Madison.

What those guesses will be — and how insurers will react if fewer young people than expected sign up for plans this year — is unknown. But Rosenberg does have one prediction that may prove true.

"It's probably five or more years down the road before things settle down," she said.



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