The tension between young insurance consumers and the Affordable Care Act

Brian Feeley

While TV pundits continue a game of political football over the Affordable Care Act (ACA), employers attempt to move forward with preparations. While not every detail of the law is settled, make no mistake about it, the ACA is here to stay.

Of the many questions that remain unanswered, here’s a big one: How strongly will young people embrace the law?

Why does that matter? Because one of the key assumptions behind the ACA is that the young and healthy will balance the insurance costs of older, typically less healthy people. Equilibrium between the two demographics allows the risk pool to be spread evenly and ensures that the system works properly.

There is concern that these so-called “young invincibles” will opt out of coverage because they (stereotypically) feel they are indestructible and don’t need insurance. The theory goes that they’ll choose to pay the penalty instead of purchasing coverage. If that’s the case, the risk pool becomes less healthy, resulting in higher premiums, a scenario that is quite the opposite of the affordability the authors of the law were hoping to achieve.

“If premiums spiral upward, millions of young people will choose not to buy coverage—whether on their own or through their employers—and instead pay fines the law prescribes for being uninsured,” wrote Janet Trautwein, CEO of the National Association of Health Underwriters, in an article published in the Hawaii Reporter. “If there aren’t enough young people paying into the insurance pool to subsidize coverage for older Americans, premiums will shoot up even further. This process can repeat itself again and again, resulting in what actuaries call a “death spiral” of higher and higher premiums—and lower and lower coverage rates.”Read the complete article.

Experts consider several contributing factors when theorizing why young people won’t participate in obtaining healthcare coverage. For example, while changes in insurance premiums will vary widely among carriers and markets, the biggest projected boost in monthly rates will be for males in their 20s. There is good reason to believe this demographic take objection to that rate increase. In fact there is already precedent for younger people to be ambivalent about health coverage. A survey done earlier this year by ADP showed that 50% of employees under the age of 30 participated in their employer’s group health benefits program. Compare that to the 70% of employees age 40 and older who participate.

Another reason why the young could make up the shallow end of the risk pool is that the ACA calls for dependent coverage to be available until age 26. Younger workers may opt to stay on mom or dad’s group employee benefit plans longer, parents would then remain on company health plans longer, and demographics would be pushed still higher. There’s some indication that this shift could already be happening—enrollment rates for older employees are steadily increasing while enrollment for younger workers is declining.

While history and current trend suggest a continual disengagement from insurance on the part of the young, there is evidence that at the very least they are considering health insurance to be a major priority. In a recent Kaiser Family Foundation survey, more than three-quarters of 18-to-25 year olds said having health insurance was “very important.” A similar number (76%) said health insurance is “something I need” and “insurance is worth the money it costs.” The percentages were virtually the same for 26-to-30 year olds in the survey.

The important question is how a young person will feel when it is time to write a check. How the Affordable Care Act impacts business will depend in part on the answer to this fiscal question.