New Rule For Younger Adults pay more for Health Insurance

Young adults likely will face sticker shock when mandatory health insurance becomes law.

Health insurers say that health-insurance rates for young adults in Arizona likely will spike when mandatory coverage starts in four years.

Under reform legislation passed last month by Congress, older adults cannot be charged more than three times as much as younger adults just based on age. Such restriction on “age-rating” likely means that younger, healthier adults will subsidize health insurance for older adults when mandatory coverage begins in 2014, health insurers say.

That reverses a long-standing industry practice: Those who use health care the most should pay substantially more for insurance.

Blue Cross Blue Shield of Arizona, Arizona’s largest health insurer based on revenue, predicts that health insurance for adults in their 20s could increase 30 percent or more once reform starts. Other health consultants and industry groups also predict price spikes for young adults.

Those higher rates will likely come as a shock to young adults because so many choose not to purchase health insurance, but they will be required to buy insurance under reform.

“Younger and healthier people pay less for insurance now,” said Jeff Stelnik, Blue Cross’s vice president and chief actuary. “With federal reform, younger individuals will need to subsidize those over 50. In essence, they will be paying more than their fair share.”…

Individual mandate

Health reform tackles a wide range of insurance-industry practices and will be phased in over the next decade. Requirements include outlawing the practice of denying coverage to people with pre-existing conditions, eliminating caps that restrict the amount an insurance plan covers over a person’s life or dropping coverage for those who face life-threatening disease.

But reform also puts mandates on state governments, businesses and individuals. Beginning in 2014, nearly all adults must carry health insurance. About 5 percent of the population will be exempt from the mandate due to financial hardship or religious objection.

The mandatory-coverage requirement means big changes for young adults because so many choose not to buy insurance.

Nearly 30 percent of U.S. adults ages 19 to 29 did not have health insurance in 2007, making that age group among the highest groups that lacked health insurance, according to the Commonwealth Fund.

Some of those adults can piggyback on their parents’ plan. Young adults will be allowed to remain on their parents’ plan up to age 26.

Others will get coverage through their employer or college. It’s not know what the price impact on college and employer plans will be under reform.

Yet many young adults will be required to purchase insurance on their own on the individual market. About one out of five adults ages 19 to 23 had individual coverage, according to the Commonwealth Fund. Although rates may vary based on health history or lifestyle factors, young adults overall likely will face much steeper rates than what they pay today, said Robert Zirkelbach, director of strategic communications for Washington, D.C.-based America’s Health Insurance Plans.

A 60-year-old often is charged five to six times more for health insurance than a 20-something, Zirkelbach said.

Under reform, that gap would shrink.

“The age-rating requirements are going to make it very difficult for young people to afford health coverage,” he said.

Not all young adults embrace health reform.

The law may extend health insurance to more Americans, but college students, such as Alexandra Zamarron, 20, of Phoenix, worry about the cost.

Zamarron, an Arizona State University history major, now receives health insurance through a parent’s plan. She plans to pursue graduate school after she gets her bachelor’s degree and worries about the prospect of paying for more expensive insurance.

“There’s no guarantee I’ll have a nice job that offers good insurance benefits,” Zamarron said.

Skipping coverage

Even though young adults will be required to purchase insurance, it doesn’t mean everyone will follow the law.

The federal government would levy tax penalties on people who have the financial means but choose not to purchase insurance. The penalties will start small, just $95 in the first year and increasing up to $695 per year.

The relatively small penalty may prompt young healthy adults to forego health coverage, experts say.

“It’s kind of a no-brainer,” said Marjorie Baldwin, an Arizona State University health economist. “If someone chose to go without health insurance before reform started, they may not get coverage,” when they are required to in 2014.

Health-policy experts say that insurers desperately need younger, healthier adults to make reform work. Insurers will be expected to take on more adults with pre-existing medical conditions that likely will drive up costs. So the younger, healthier customers are needed to purchase policies and balance costs.

Jim Hertel, publisher of “Arizona Managed Care Newsletter,” said reform may essentially force young adults to pick up the tab for older adults.

“Younger individuals will face higher burdens for what might be lower costs for older adults,” Hertel said.

Insurer scrutiny

Still, reform advocates say warnings of higher insurance rates for young adults are too simplistic.

For one, insurance companies will face additional regulations that could affect rates. Insurers next year will be required to justify rate increases and be required to maintain a minimum “medical-loss ratio” – the percentage of revenues collected through insurance premiums that are paid on medical claims.

Such scrutiny could limit insurance-industry profit, keep rates in check and in some cases push overall rates lower, consumer advocates say.

“They (insurance companies) will no longer have the ability to inappropriately raise premiums for any part of the population” said Kathleen Stoll, director of health policy for Washington, D.C.-based Families USA, a consumer-health group.

What’s more, Stoll said it is unfair to group together all young people. Young adults with existing medical conditions or disabilities may see their health-insurance rates decrease. That is, if they have health insurance at all. Some young adults likely are shut out from coverage due to existing medical conditions or disabilities, an industry practice that will end with reform.

“For young adults with less-than-perfect health, they are going to benefit from reform,” Stoll said. “Many young adults will be able to buy individual insurance for the first time.”