Do the ObamaCare exchanges really need healthy young people?

The common wisdom is that the ObamaCare insurance exchange needs healthy young people to subsidize the older, less healthy enrollees … otherwise, policies offered on the exchanges will go into a premiums’ death spiral.

I’m not so sure.

 

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Here’s my thinking …

 

First, it’s not obvious to me why anybody who doesn’t qualify for a Federal insurance subsidy would even bother going through the ObamaCare exchange.

They can still get health insurance from providers who don’t participate in the exchanges … and, I’m betting that their premiums will be competitive since their risk pools are likely to be more favorable than the exchange’s.

More important, it’s not clear to me why anybody under 26 who has a working parent with employer-provided family plan health insurance policy would opt for an individual policy – either via the exchange or through their employer – instead of appending to their parents’ plan as an “adult-child”.

My understanding: adult-children ride free on their parents’ family plan policies … but have to pay a premium if the go the individual route.

Free beats not-for-free every day of the week!

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So, I’m thinking that many (most?  all?) healthy people are going to bypass the exchanges, unless their low earnings qualify then for a Fed subsidy.

If that’s true, then the exchange enrollees will be primarily made up of 2 groups: those getting subsidies and those with pre-existing (or expected) medical conditions.

Does that mean that the exchanges will crater?

I don’t think so.

Sure, insurance companies will take a hit in the first year since their risk pools will be more adverse than expected.

So, they’ll up the premiums in the 2nd year to reflect the pools’ real risk profile.

But, for subsidized enrollees, the premium increases will be offset by larger Fed insurance subsidies.  No harm to them.

For unhealthy folks in the pool, premiums will go up … but they’re locked in.

Yeah, they have to pay more … but at least they have coverage.

What am I missing?

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2 Responses to “Do the ObamaCare exchanges really need healthy young people?”

  1. Elaine Hammers Says:

    It’s not true that the under 26 get a free ride on their parents insurance. Yes they have to be covered but if the parent has says just single insurance the premiums change when you add one; or if its a couple and you add one and go to family coverage the premiums also go up. If they already cover 3 or more than the premiums might not change. But I think you are correct that in a lot of cases it is still cheaper to get coverage through your parents especially after the new rates go into effect that are not age rated for the parents coverage.

  2. Robert Metz Says:

    The ACA mandates a single risk pool for both “on-exchange” and “off-exchange” enrollees in the individual insurance market for exactly the reason you point out. Otherwise, only those needing a subsidy would join the exchanges, and an argument could be made they are likely to have greater utilization due to not having been able to afford insurance previously. This would force higher rates on-exchange, causing the exchanges to crater.

    That said, the Federal exchange is funded via user fees on each plan sold. So, if not enough enrollees join, there will not be sufficient economies of scale to allow the exchanges to be self-sustaining.

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