Rate Shock for Young Americans: Debunking the Myth

Recently, there has been heated debate about the “rate shock” that some say young adults will experience as a result of the change in age rating under the Affordable Care Act. Today, insurers typically charge older Americans five times the amount they charge younger Americans. But, under the new law, insurance companies will be prohibited from charging older Americans any more than three times the amount they charge younger Americans in the individual market (insurance purchased outside of one’s job). Critics say this will cause premiums to rise significantly for young adults, who will be compensating for the significantly decreased rates charged to older Americans, and this increase will make their health insurance unaffordable.

A new report conducted by researchers at the Urban Institute shines some much-needed light on the age-rating issue by taking a closer look at the true  impact that age rating is likely to have on the affordability of health insurance. The report compares premium rates for different age groups at the five-to-one norm and the new three-to-one standard, but also accounts for other forms of assistance available under the law.

What did they find?

Young Americans are not likely to face devastating premium increases. Most young adults aged 21 to 27 will see no effect on their premiums because  the law is designed to make coverage affordable. The two groups of greatest concern are the 3 million currently enrolled in individual coverage and the 10 million who are currently uninsured. The study found that two-thirds of young adults who currently have insurance through the individual market and more than 70 percent who are currently uninsured will be eligible for Medicaid, CHIP, or premium assistance. Those eligible for Medicaid or CHIP will not be affected by the individual market age rating and those making less than 400 percent of the federal poverty level—those with an individual annual income of up to $45,960—will receive assistance paying for their premiums. In fact, 96 percent of young adults in the 21–27 age group buying plans for themselves in the individual market have incomes below 400 percent of poverty, which makes them eligible for assistance that largely makes up for any premium increases from the change in age rating.

So how will premium assistance assure that young Americans can afford their coverage? A number of variables will determine the amount of premium assistance people receive, but it will be based off of the cost of the basic, or “benchmark,” plan for that state. Those receiving the assistance will be free to use it to purchase the benchmark plan or a plan that is more or less expensive. Let’s take the case of Jane Smith who is a single, young adult with an annual income of $23,000 (about 200 percent of poverty). If we assume that the annual premium for a benchmark plan in her state marketplace is $5,000, she will get a tax credit of $3,550. She would pay $1,450, or about $121 per month for that plan—or she can use the $3,550 of assistance to help pay for a different plan that she chooses. This is huge! But what about those who aren’t eligible for Medicaid, CHIP, or premium assistance? Young Americans under 26 years old are eligible for coverage under their parent’s job-based plans thanks to the health care law. And the few who may still face higher premiums have other options: They can purchase a “catastrophic plan” to ensure they are protected from the highest, medical costs or, if they are students, they can likely purchase plans through their university.

As a 23-year-old young adult, I feel secure knowing that the Affordable Care Act protects me and my fellow young adults from “rate shock.” I may receive coverage under my parent’s job-based plan and my friend may receive premium assistance to buy a plan in the individual marketplace, but the important thing is that we both have access to affordable coverage.