The official name of the health care reform legislation that President Obama signed into law in 2010 is the Patient Protection and Affordable Care Act. This has led many to believe that health insurance premiums will go down. Unfortunately this is not the case, particularly for younger policyholders.
This is going to be a surprise for many people. In 2009, supporters of the proposed law were bringing out economists that were actually claiming that the law would cause health insurance costs to go down. President Obama was claiming that the law would “bring down premiums by $2,500 for the typical family”.
Young Must Subsidize the Old
Most experts are now expecting premiums to increase 30 – 50 percent, on average. But for the younger policyholders (who are more likely to be healthy and less likely to need their coverage), premiums will be going up a lot more.
This is because the law states that an insurance company can charge an older policyholder no more than three times what they charge a younger policyholder. Since the typical 64-year old has way more than three times as much health care spending than the typical 18 -ear old, it is the 18-year old is going to be the one paying for it.
Some early projections are showing that starting in 2014, a new plan may cost as much as 300% what it does now, for a young male in his mid-twenties. The big questions is – will young people be willing to pay this much?
Potential Death Spiral
When the government manipulates pricing so that something costs more or less than it is really worth, there are always unseen consequences. One possibility is that young people will choose to go without coverage. In 2014, they will only face a $95 penalty for not having coverage, so this may be an option that many take.
If that happens, then premiums will have to go up more on everyone else, since we don’t have the young healthy policyholders to foot the bill. If that were to happen, the entire system could collapse.
Congressmen Jim Matheson (D-UT) and Phil Gingrey (R-GA) have introduced H.R.455, which would change the age rating band from 3:1 to 5:1, or allow states to determine their own age band. (In reality, there should be no age band, and young people should not have to subsidize older policyholders).
What Should You Do
You will not be required to purchase a new plan until the anniversary date in 2014 of your existing plan. So you may want to hold on to your current plan, or get a new plan prior to the beginning of the year.
If you have coverage that initially went into force prior to March 23, 2010, it is considered to be a “grandfathered” plan, and you will not be required to purchase a new plan.
If you do have to get a new plan, and are under age 30, you can choose a catastrophic plan that will cost less (we don’t know how much less, yet).
Finally, if you currently have coverage with us we will be providing you details about your options as that information becomes available.