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Sunday, Jan. 26, 2014

Understanding Obamacare: Young Adults Should Sign Up

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Question: Will Obamacare fail if young people don’t sign up?

Answer: Don’t listen to the alarmists talking about the Affordable Care Act’s early demise. Obamacare won’t crash and burn if more older consumers sign up in comparison to the young and healthy.

Obamacare, of course, encourages young adults to enroll and contains many incentives for young people to sign up. They can stay on their parents’ policy until they’re 26, coverage isn’t tied to employment and subsidies allow young workers who are just getting on their feet to be able to afford insurance.

The reason why some are concerned about older people enrolling in large numbers is because of insurance industry abuses that gouged older consumers at precisely the time they need coverage the most. Prior to the Affordable Care Act, insurance companies would put people into large groups to mitigate against the risk that certain people cost more. These “risk pools” would mean higher costs for older, sicker individuals, and comparatively lower costs for young, healthy people. That hasn’t changed now, except many small risk pools are actually rather inefficient. And charging 60 year olds more than five times more than 20 year olds is pretty perverse.

But even in a worst-case scenario—if young people don’t enroll to offset the costs of older consumers—the sky won’t be falling anytime soon. While insurance companies always want more young and healthy people enrolled, no matter what happens the new law protects the system. Three programs in the Affordable Care Act—Risk Adjustment, Reinsurance and Risk Corridors—protect the marketplace from worst-case scenarios and perverse incentives.

Risk Adjustment moderates the market, preventing insurance companies from only trying to sign up healthy people. If one insurance company enrolls more healthy people than another, they will now split the difference to ensure the market is fair. Risk adjustment is a long-standing practice in Medicare Advantage plans as well as Medicaid health plans. Reinsurance is like insurance for insurers, and backs them up so they can survive even big losses. Risk Corridors stabilizes premiums and prevents extreme gains or losses by insurers in relation to others.

So even if every millennial fails to get coverage, the marketplace would manage it. What does matter is young adult enrollment compared to other states. Already, other states are seeing lower costs than Wisconsin, and this could be exacerbated if our enrollment demographics skew comparatively older. So while we want young adults to enroll, thanks to the three “Rs” in Obamacare we are protected.

—Kevin Kane, lead organizer, Citizen Action of Wisconsin

The Shepherd Express and Citizen Action of Wisconsin will answer questions about the Affordable Care Act during its implementation. Got a question? Email editor@shepex.com.