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Health insurance premiums for young people will rise in all 50 states under Obamacare, with an average increase of 260 percent, according to a study released Thursday.
The young and healthy segment of the uninsured is considered crucial for the Affordable Care Act to succeed. Former President Bill Clinton suggested last week that Obamacare only works “if young people show up.”
However, an analysis of premiums both before and after the implementation of Obamacare shows that 18- to 35-year-olds are likely to opt out of high rates in the exchanges in favor of cheaper penalties for not having insurance.
According to a study released by the American Action Forum, post-Obamacare premiums will average $187.08 per month, up from $62 per month in 2013, a 202 percent increase. Overall, states averaged an increase of 260 percent.
Forty-four out of 50 states saw a three-digit percent increase, and in Vermont the cheapest available premium for a 30 year-old male nonsmoker will increase by $332.69, or 600 percent.
The American Action Forum, a center-right policy institute led by Douglas Holtz-Eakin, the former director of the Congressional Budget Office, compared premiums across the nation in 2013 to rates under the federally and state run exchanges in the heath insurance marketplace, which launched on Tuesday.
The group analyzed plans for a 30 year-old male non-smoker as the model for the so-called “young invincible.” They presumed that if a healthy young person purchases health insurance, he would most likely choose the “bronze plan,” the least expensive plan offered in the marketplace.
After analyzing each bronze-tier plan for a 30-year-old single male, every state saw an increase. Most saw an increase between 200 and 300 percent, with the top five occurring in Vermont, Georgia, Nebraska, Arkansas, and Wisconsin.
Massachusetts had the lowest increase at 9 percent, though the state is considered an “outlier” since it already had similar health care reforms put in place under former Republican Gov. Mitt Romney.
“[T]hat state’s insurance market has been subject to ACA-like reforms since 2006, bloating the premium for the lowest-cost pre-ACA policy to nearly $214, making it the highest of the 2013 premiums analyzed in this study,” the report said.
Given the high costs of the premiums, the study predicts that even with subsidies, most of the young uninsured will opt to pay the penalty rather than sign up for health care.
Individuals between 100 and 400 percent of the federal poverty line are eligible for subsidies under the law.
Only those who earn up to 133 percent of the poverty line will have a financial incentive to join the health exchange. An individual with an income of $15,281.70 would receive a subsidy to cover 100 percent of their health care premiums.
Moving up the income bracket creates disincentives for the young to enroll. Those making $20,107.50, or 175 percent of the poverty line, will still face a $449 premium, which is three times higher than the penalty they would incur in 2014 ($103.57) if they did not purchase insurance.
An individual earning $37,342.50 will receive no subsidy at all and will face a minimum premium of $2,839, as opposed to a $275.92 penalty in 2014.
“Premium subsidies will do little to defray increased rates for young people, while penalties for noncompliance appear paltry when compared to the costs associated with coverage,” the study said.
The report, written by Sam Cappellanti, a health care policy analyst at the AAF, points to numerous policies within Obamacare as the reason for higher premiums, most importantly “guaranteed issue” and “community rating.”
Guaranteed issue is the portion of the law that restricts health insurers from denying coverage on the basis of preexisting conditions. The study notes that the policy forces insurers to pay more for high-risk individuals and enables others to apply for coverage after they get sick, making premiums go up for everyone else.
“Bringing higher cost individuals into the risk pool gives rise to premium increases for the young as the system has to accommodate enrollees requiring above-average expenditures,” the study said.
Community rating under Obamacare mandates that insurance companies charge the same premium to individuals regardless of health history and current health status.
“In a guaranteed issue and community rating system, healthy individuals are perversely incentivized to wait to enroll in coverage until there is a true need,” the study said.
Other factors driving up premiums are the Health Insurance Tax (HIT) and fees insurance companies must pay in the exchange, which are likely to be passed onto the consumer.
The policies work together to create what Cappellanti calls a “death spiral,” making premiums jump “exponentially” in 2014.
“In response to rising costs, young healthy enrollees opt out of coverage, seeing the investment as financially disadvantageous given their low medical costs,” the study said.
“The insurance risk pool becomes disproportionately older and sicker, further increasing prices and driving insurers out until the system becomes unsustainable.”