Skip to content

State Insurance Officials Raise Concerns About ‘Rate Shock’ For Young People

If young adults can’t afford health insurance policies available in 2014 under the health care law, state insurance officials are worried they won’t buy them.  And that could drive up the cost of insurance for the mostly older, sicker people who do purchase coverage.

That’s a potential problem even in states like California and Rhode Island, which are moving ahead to carry out the law, state officials told representatives of the Obama administration Friday at a meeting of the National Association of Insurance Commissioners. They said they’re concerned that young people facing insurance “rate shock” may opt to pay a relatively modest penalty — $95 in the first year — rather than pony up thousands of dollars to purchase coverage.

“We are very concerned about what will happen if essentially there is so much rate shock for young people that they’re bound not to purchase [health insurance] at all,”  California insurance commissioner Dave Jones, told federal health officials. “It is a big problem for those of us, like in California, who are moving forward very aggressively to implement this [health law] and want to be successful.”

The law requires insurers to charge premiums to older beneficiaries that no more than three times what younger people would pay. The provision will control costs for those up to age 64 who may have expensive health conditions, but it also forces up rates for younger plan members.  That’s the way most insurance works, with cheaper members helping to offset the costs of more expensive ones.

But the concern is it may be too much, too fast.

“Is there any way to find some wiggle room on age rating to implement it over a two- or three-year period?” asked Sandy Praeger, the Kansas insurance commissioner, who also chairs the National Association of Insurance Commissioners’ health insurance and managed care committee.

A more “gentle phase-in” of the age rating rule will help avoid rate shock and encourage young people to enter the insurance market sooner, she said.

Christopher Koller, Rhode Island’s health insurance commissioner, echoed those concerns, which NAIC first raised when Congress was debating the health care legislation in 2009.

But the government may not have much leeway, replied Gary Cohen, director of the Center for Consumer Information and Insurance Oversight, which is part of the U. S. Centers for Medicare and Medicaid Services. “The statute is pretty clear.”

Then he punted the question back to the commissioners.

“We welcome comments on the rule — both on the policy implications and the reasons why people would like to see a different outcome — but also on what the legal pathway might be that we would employ to get there assuming we agreed on the policy,” he said.

There are some things that may cushion rate shock for younger people: At least some of those with low incomes will qualify for subsidies. Moreover, insurers that sign up a higher-than-average proportion of sicker people can get premium stabilization subsidies to reduce costs at the high end.

“And eventually they won’t be younger and healthier; the law of averages will catch up with them,” Praeger said.  “As much as they might think it’s good to have to have the lower rates, these protections will protect them too.”