Incentivizing Young Adults to Buy Health Insurance
In a recent announcement, CMS acknowledged the need to insure younger and healthier adults in order to contribute to a more balanced Marketplace risk pool and lower costs. CMS detailed a series of actions to step-up Marketplace outreach, especially to young adults who are still more likely than average to remain uninsured. While the suggested actions, which largely focus on targeted outreach to and educating young adults about their health plan options, will have some impact on enrollment, they don’t address one of the principal barriers young adults are facing: cost.
Earlier this year Leavitt Partners published a blog entitled “Why are the young and healthy not buying into Obamacare?” that identified cost and the lack of subsidies as significant barriers for the young and healthy purchasing a qualified health insurance plan. This post discusses two structural changes that could provide increased incentives for younger and healthy adults to purchase coverage.
First, the inequity in available subsidies diminishes the incentives for a younger consumer to purchase coverage. Not only is the subsidy amount available to young adults extremely low, but it is also substantially lower than the subsidy available to a 50-year-old with the same income. The inequity occurs due to the inherent structure of setting the advanced premium tax credit (APTC). The APTC is set as the difference in the premium price for a consumer relative to a consistent premium cap for all consumers at a certain income level below 400 percent of the federal poverty level (FPL). While the cap sets a maximum price for the benchmark Silver plan for all consumers at the same income level, it actually mitigates the intent of the 3:1 age band which is that older, costlier consumers should pay more on average than younger healthier consumers. Setting a maximum price actually has the effect of providing significantly more subsidy (increased APTC) for older consumers and offering much less for younger consumers. Developing a subsidy structure that more closely aligns with the value that health insurance provides consumers should help create a more balanced risk pool that represents the market.
Second, employers should be allowed to offer tax free payments for employees to purchase subsidized individual coverage on the health insurance marketplace. Similar to the need to save for retirement, many consumers also tend to underestimate or avoid the short-term costs to save for the future. To support consumer savings, the federal government has created tax-incentives for employers to provide matching 401 contributions to spur employees to save more. While the tax code provides relief for employer-sponsored benefits for a group, it does not allow tax-free payments for employees to purchase subsidized individual coverage on the health insurance marketplace. Many uninsured young adults don’t receive their health benefits from their employer. However, if employers could provide tax-free payments tied to the purchase of health insurance coverage it may incent many of their employees to purchase health insurance.
Since the inception of the ACA, Leavitt Partners has actively tracked demographic enrollment data through our Insurance Market Discern data center. We understand that while this is not an easy problem to solve, incentivize the young and healthy to purchase health insurance is critical to ensuring a more balanced marketplace. We encourage all stakeholders involved to continue to have an open dialogue about this very important issue.