Lagging Youth Enrollment Continues to Drive Up Obamacare Costs

Congratulations, Obamacare! You’ve done it. You’ve successfully hit one of your most important targets: 2.8 million young-adult enrollees. Sure, that target was for last year, and your failure to come anywhere close was one of the primary reasons that insurers dramatically increased health insurance premiums. And sure, by now you were supposed to have around 5 million customers between the ages of 18 and 34. But hey, better late than never, right?

Wrong. The fact is, nearly everyone across the political spectrum recognized that young adults were absolutely crucial to keeping the Obamacare house of cards standing. Part of that is simple actuarial science, you need a lot of young, healthy people who are unlikely to have huge medical bills in order to water down the risk (and the cost) of those who suffer from chronic conditions or are more likely to become injured or ill.

The other part was a hush-hush deal to buy the AARP’s support with young adults’ dollars by limiting “age banding,” which allowed insurers to apply different premiums to people of different ages based on their health risk. As a result, “old adults will be paying premiums that do not fully cover their expected medical expenses, while younger adults will be paying premiums that more than cover their expenses,” explain Kaiser Family Foundation researchers.

Though they don’t like to discuss how the sausage was made, they will readily admit that young adults are an absolutely necessary ingredient. As Obamacare proponent Jonathan Chait wrote:

“Obamacare’s success depends heavily on the new health care exchanges, where anyone without employer-sponsored insurance can buy coverage, no matter what medical problems they have. But if the right kinds of people don’t sign up, the exchanges won’t function properly.

Health insurance needs lots of healthy people to sign up for coverage. Their premiums cover the big bills for the relatively small number of sick people. So if the exchanges don’t enroll enough young, healthy people, insurers will have to raise everyone’s premiums. In the worst case, this could create what actuaries call a “death spiral”: Rising premiums prompt people to drop out, causing premiums to increase even more.”

That scenario is exactly what we’re beginning to see play out. As Jed Graham reports for Investor’s Business Daily :

[Y]oung adults accounted for just 27.9% of exchange sign-ups during this year’s open enrollment. That means about 2.8 million 18- to 34-year-olds have ObamaCare exchange coverage — fewer if they made up an outsize share of those who didn’t pay.

Yet the CBO expected 2015 exchange enrollment to hit 12 million, reining in its prior estimate of 13 million after participation fell short in 2014. If enrollment had kept up with independent projections, there should have been 4.8 million to 5.2 million young-adult members.

In other words, 18- to 34-year-old enrollment has fallen short by about 2 million to 2.4 million, or more than 40%.

Meanwhile, the number of people age 55 and over who have joined the exchanges is 29% above forecasts.

The skewed enrollment is one of the primary reasons that many insurers are already asking for double digit premium increases. Although the New York Times’ attributes this phenomena to “guesswork” – an effort to paper over the inflationary effects of Obamacare – the increases are largely based off of last year’s experience. As Seth Chandler writes:

If you actually read the justifications for the premium increases submitted by insurers and their accompanying actuarial memoranda, you can see there are two dominant themes: (1) higher than expected claims expenses and (2) diminution of federal subsidies to the insurance industry.  You can also see lengthy memoranda containing facts and figures explaining their experience last year and the basis for their trending those experiences into the future.

We’re not in a death spiral yet, but if premiums continue to rise by double digits each year and deductibles continue to grow more unaffordable then some decisions will have to be made in Washington. Repeal and replace might not become the Republican preference…it might become the only option.