Reform Update: Could young adults on parents' policies impact exchanges?

Obama administration officials have touted a provision of the healthcare reform law that allows young adults to remain on their parents' health insurance until age 26. But that benefit could end up driving up premiums in the state health insurance exchanges since many of these young and healthy individuals will not need to get coverage through those marketplaces.

In December, the National Center for Health Statistics released data that more than 2.5 million young adults have benefited from the provision of the Patient Protection and Affordable Care Act. And while that's great for them, it could spell trouble for exchange risk pools as these so-called “young and healthy” will not enter the exchanges, potentially skewing the exchange risk pools toward older and sicker people.

Robert Laszewski, a former insurance executive and president of Health Policy and Strategy Associates, a consulting firm, says this possibility is a “a very, very big deal.” Citing a Congressional Budget Office projection made in March that only 7 million people are expected to enroll in exchanges in 2014, Laszewski believes that given the large number of young people already covered under their parents' coverage, “from an underwriting perspective, that is a freaking huge” impact.

Just last week, HHS Secretary Kathleen Sebelius penned a blog entry on the healthcare.gov website encouraging recent graduates to take advantage of the ACA mandates, including the provisions allowing them to remain covered under their parents' policy until 26.

And in a commencement address at Morehouse College this month, President Barack Obama told graduates there, “We've got to make sure everybody has good health in this country. It's not just good for you, it's good for this country. So you're going to have to spread the word to your fellow young people.”

CMS officials did not respond to a request for comment on whether the under-26 provision will undermine the exchange risk pools.

In the magazine this week, I reported on how proposed premium rates from carriers for the individual market in California's exchange came in lower than expected. Laszewski, however, says that officials there aren't providing the whole picture, because the comparison between 2013 and 2014 proposed rates is not an apples-to-apples comparison since the California exchange “forces us to give up our apple and buy a more expensive orange.” In a blog post Tuesday, he adds, “One of the reasons health insurance in the exchange will cost a lot more in most states is because the new health law outlaws many of the existing plans now being offered and requires only those much richer plans to be sold.”

A study released Thursday by the actuarial firm Milliman predicts that the rise in premiums for comparable plans between 2013 and 2014 will vary greatly by state, with residents of some states seeing a decrease. The study corroborates the findings of a March report by the Society of Actuaries. For example, the Milliman study, conducted by a research organization called Center Forward, found that premiums for those eligible for subsidies in Florida are expected to rise between 40% and 60%, while in New Jersey, they are expected to decline between 2% and 25%. It also found that it may be more financially viable for some Americans to not buy health coverage and pay the federal tax penalty next year. People who are eligible for modest subsidies because their incomes are closer to the income eligibility cap, as well as those that are not eligible for subsidies, may find 2014 premium costs are high enough that it's more financially viable to pay the penalty and not buy insurance, the report said. That's particularly true for healthier people.

Officials in at least six state-based exchanges are considering options to raise revenues to operate their exchange, according to a GAO report released Thursday. The report found that three of the states plan to charge fees to insurers offering plans in their exchange. However, the other states said they faced challenges developing such options, given the uncertain picture on what exchange enrollment will actually be. By law, the exchanges must be financially self-sufficient beginning Jan. 1, 2015.

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