Is a popular ACA provision straining the exchange markets?

Topics: Health Care Reform, Exchanges, Insurance, Politics and Policy

By Rachel Schulze, senior staff writer 

While some experts say that the Affordable Care Act's (ACA) exchange population is too old and too sick to form a stable market, one analyst suggests a popular ACA provision could be to blame.

Actuaries say young adults ideally should make up about 35 to 40 percent of exchange enrollees. But the latest HHS data show only about 28 percent of exchange plan enrollees last enrollment season were in the key age group: ages 18 to 34. And that rate is unchanged from the previous enrollment season.

Looking inside the law for solutions  

Under the ACA's modified community rating system, insurers are not allowed to base premiums on enrollees' health status. Insurers can, however, tie premiums to age: They can charge the oldest enrollees up to three times as much as the youngest enrollees.

That arrangement might seem to incentivize insurers to enroll older enrollees who pay higher premiums. But in fact, the youngest enrollees tend to be the most profitable, as their medical spending is often very low.

As such, Benedic Ippolito, a research fellow at the American Enterprise Institute, in an opinion piece said that it is "critical" for exchanges to enroll the younger, "healthier population." He wrote, "To be successful, community-rated markets must be paired with policies that encourage entry of the lower cost population."

However, Ippolito noted, "Rather than encouraging the young to participate, the architects of the ACA went out of their way to introduce a new policy that funnels young, healthy adults away from the exchanges" -- referring to the provision that allows young adults to stay covered under a parent's policy until age 26.

According to the latest HHS estimates, 2.3 million U.S. residents ages 19 to 25 gained coverage under the provision between 2010 and 2013.

Ippolito suggested that one way to boost young adult enrollment in exchange plans would be "to simply eliminate" the dependent coverage provision. He wrote, "Given the goals of the ACA marketplace, it is not clear why a seemingly arbitrary [eight]-year age group would be exempted from the exchanges in the first place."

Why mess with a good thing?

However, others are skeptical about taking aim at the measure.

Benjamin Sommers, an assistant professor of health policy and economics at the Harvard T.H. Chan School of Public Health, in an interview with American Health Line said that eliminating the provision would be "kind of [like] cutting off your nose to spite your face." He noted, "The goal of the [ACA] is ultimately to expand coverage and access to care to near-universal coverage levels." Citing coverage gains under the law, Sommers said, "The dependent coverage was a really important piece of that."

Dave Dillon, a fellow of the Society of Actuaries, told American Health Line that eliminating the dependent coverage provision would not necessarily prompt young adults to enroll in exchange plans. He believed "there would still be challenges in terms of those persons buying coverage for the first time, those persons thinking … in terms of ... the cost of coverage relative to their income."

Ippolito acknowledges that efforts to repeal the provision would likely meet opposition. In an interview with American Health Line, he said, "It would be extremely difficult to repeal because there is that large population that is clearly benefiting from that rule." 

He also noted the provision "is hugely popular across Democrats and Republicans alike." A Kaiser Family Foundation (KFF) Health Tracking Poll in March 2014 estimated that the provision was supported by 80 percent of U.S. residents, including 76 percent of Republicans.

Even setting aside the difficulty of repealing the provision, some experts dispute Ippolito's claim that it threatens the stability of the risk pool.

Karen Pollitz, a senior fellow at KFF, told American Health Line, "In terms of the health of the risk pool, definitely there's interest in signing up young people because they tend to be lower risk." However, she noted, "There doesn't seem to be any indication that we're skewing so badly on young adult enrollment that it's bad for the risk pool. I think the greater concern is that we just grow the risk pool generally."

Still, if healthy individuals stay out of the market, "insurers must increase prices for the relatively expensive group that remains," Ippolito wrote. He added, "Higher prices, in turn, could lead the healthiest remaining individuals to drop coverage, leading to still higher prices, and so on."

Another option?

Acknowledging the political obstacles to abandoning the dependent coverage provision, Ippolito in his opinion piece suggested revising the community rating system to reduce premium costs for the younger population. He noted that "[a]llowing for larger differences in premiums effectively means the young will pay less, encouraging greater participation."

While allowing insurers to vary premiums more widely by age would be effective for boosting young adult exchange enrollment, Sommers said that policymakers assessing the ACA should also consider the goals of the law "as a whole" -- which include keeping insurance affordable even for older, sicker enrollees.

Sommers explained, "[P]art of the rationale of this three-to-one banding was to make sure that coverage was affordable for the adults who are older and more likely to really need health insurance and benefit from that coverage."

Keeping things in perspective

According to Sommers, "[T]he age mix is one of many factors that influences premiums but isn't the end all be all of whether the marketplace works." He explained, "If the age mix is not as young as expected, that means overall average health care costs will be higher, but there are a lot of other factors that also influence whether the health care costs are what the actuaries expect, whether they're lower, whether they're higher."

Ippolito, for his part, agrees that the exchanges likely will not fall into a death spiral. He told American Health Line that, while "the risk pools matter a lot," the ACA's subsidies make total collapse of the exchanges "essentially impossible." He said, "The exchanges have done a very good job of attracting the easy people," adding, "The question is how many more people can you sign up."