The One Thing Needed for Exchanges to Succeed

Young people are the most coveted of all participants to have enrolled in a health insurance plan.   It is the concept that underlies group underwriting to have those with fewer health risks to help offset the cost of those who are older and have greater medical needs.   Dallas ranks as one of the largest communities of uninsureds in Texas at 31% compared to a 26% state average. Many of these uninsureds are young people (ages 18-35) who have relied on our public health system to be there if things do not go as planned.

The very success of the Affordable Care Act (ACA) will depend upon convincing these "young invincibles" that health protection is worth purchasing.   If only the public exchanges could be as inviting as an Abercrombie & Fitch, Hollister or a Juicy Couture. The federal government is projecting enrollment in the exchange system to be around 7-8 million by the end of 2014.   As the law intends, the cost of insuring the most expensive users of the system must be offset by around 2.7 million of young invincibles between the ages of 18-35 for it to work. In the first month of enrollment, 26,794 people selected a health plan on the federal exchange website. The makeup of these enrollees has not been released by the federal government, but a demographic match to the patronage of a cafeteria restaurant is to be expected.

As exchange enrollment begins to materialize in 2014, public officials may wish to revisit the following if they hope to enroll the most coveted young adults:

1. A Retail Experience That Works - When the standard young people are used to is designing their own Nike shoes online or ordering Uber's transportation service at the push of a button, will find itself quickly falling off the browser's  "favorites" list.   In a November survey by USA Today, many young people will not try again until December and cannot even comprehend calling a 1-800 number for service.   We all like using intuitive technology that works ... but young people demand it even more ... a problem plaguing for the foreseeable future.

2. Changes to Employer Plan Dependent Definition  - Many employer plans used to only cover dependent children up to age 19 or 26 (if a full-time student).   On January 1, 2014, all employers (grandfathered and non-grandfathered) will be required to extend coverage to dependents up to age 26.   The chief actuary at CMS is likely regretting the legislature's decision to extend dependent coverage to age 26 for employers.   With 60% of American's covered by employer-based plans, this leaves a smaller group of of younger adults to enroll under the public exchanges.

  3. Affordable Coverage -  Older Americans will pay a higher rate than younger Americans, but the community rating is tiered using only three different age group bands. AARP lobbied strongly for this and it is an absolute boon to the baby boomers and a real shaft to Generation X, Y, and millennials who will bear the brunt of the top third-oldest risk tier by age. Age rating bands of 3:1 will prevent insurers from charging an adult age 64 more than three times the premium they charge a 21-year-old for the same coverage. As a result, young Americans will see higher premiums under the Exchanges than when they could have purchased coverage (Pre-ACA) in the private market when they used age rating bands of 5 to 1.

The Obama administration's federal study found that if all 50 states had expanded their Medicaid coverage the way they were supposed to when the law was passed, almost 90 percent of single Americans under 35 years could get coverage that cost less than $100 a month. They did not count on a Supreme Court ruling that enabled 25 states to opt out of expanding Medicaid coverage. This created unexpected "cracks" in the system when many young people who were to have qualified for Medicaid coverage will find they do not earn enough for subsidies under the Exchange.

In an astute political move, the Obama administration pushed back the requirements to release projected increases in health premiums for 2015 until after the November 2014 elections. In 2014 our young adults will eventually have to make a decision to pay the federal penalty (the greater of greater of $95 or 1% of AGI annually) or buy health coverage. Here's betting their XBox One they pay for neither.