In their zeal to repeal Obamacare, Republicans in the U.S. Senate may have just proposed a new healthcare entitlement program for people in their 20s. Call it Medicare for Millennials.
Just as Medicare Advantage plans target seniors with $0 premium products, we soon could see health insurance exchange plans marketing “free” or low-cost health insurance to people in their 20s. Tents would pop up near college campuses and hip neighborhoods offering young people free t-shirts or Fitbits to sign up for insurance, with the insurer collecting the subsidies.
First, a little explanation. Section 102 of the discussion draft of the Senate bill ties premium subsidies to the median cost of plans that have an actuarial value of 58 percent, which is less than the current Bronze level of 60 percent. Under the Affordable Care Act, subsidies are currently benchmarked to the second-lowest cost Silver plan, with an actuarial value of 70 percent.
Should the Senate bill become law, exchange insurers may shift their focus to selling products at the 58 percent actuarial level, which would have higher deductibles, copays, and similar out-of-pocket costs, but without the cost-sharing payments to offset these costs. Under the Senate bill, CSPs expire at the end of 2019.
In this scenario, premiums on the exchange could possibly be lower than they are now, because the plans are less generous—but that’s almost beside the point because of the way subsidies are structured in the Senate bill. For low-income people in their 20s, subsidies (capped at 350 percent federal poverty level instead of 400 FPL) could cover the bulk of the premiums. These would likely be high-deductible plans tied to health savings accounts and narrow networks.
Additionally, the Senate bill offers exchange subsidies for people making less than federal poverty level for the first time; as Obamacare was initially designed, this income bracket was supposed to get coverage through Medicaid expansion. While the Senate bill eventually chokes Medicaid spending over the course of several years, in the short term, a lot of people making less than federal poverty level will have access to subsidized health insurance.
This change will mean more to insurers than to the many of the people covered, since the plans will be minimal. They may not even cover essential health benefits because of the way the Senate bill changes the 1332 waiver, a feature of the ACA that allows states to experiment with their own healthcare delivery and payment innovations.
Generally speaking, the way premium subsidies for exchanges plans have been handled is that the insurer gets to collect them when the customer signs up for coverage. Under the Senate’s proposed ACA replacement, insurers would be incentivized to sign up poor, young people for “free” health insurance, collect the taxpayer-funded subsidies, and then provide bare bones coverage for these new enrollees.
Under Obamacare, tacking subsidies to the second-lowest premium silver was designed to encourage lower proposed premiums. In theory, only two silver plans in a rating area would be completely covered by subsidies for people eligible for full premium assistance, with a sliding scale subsidizing premiums for people making up to 400 percent FPL.
Tying the subsidies to the median, as the Senate bill does, means that half of the exchange plans at 58 actuarial value would qualify for subsidies.
But the Senate makes another change to the subsidy structure: They are tied to age as well as income. For example, under Obamacare, the premium subsidy is capped at about 2 percent for exchange customers making less than 133 percent FPL, and goes up a sliding scale so that people making between three and four times FPL have their premium subsidies capped at less than 10 percent of their modified gross adjusted income, or MAGI.
Under the Senate bill, customers in their 20s have premium subsidies capped at more than 4 percent for 300 percent FPL, and less than 7 percent for millennials at 350 percent FPL. But for pre-Medicare customers age 60 and above, the premium subsidies are capped at under 12 percent MAGI at 300 percent FPL to more than 16 percent MAGI at 350 percent FPL.
Oversimplifying this calculation a bit, a person in their 20s making 350 percent FPL ($42,210 for 2017) has premiums capped at less than $250 a month, while a person in their 60s but not old enough for Medicare would have premiums capped at more than $560 a month.
The Senate bill also allows insurers to charge older Americans five times the premium rate that they charge younger people (sec. 204); the current law caps the variation at three times. (Interestingly, the section says that “the State” can determine the ratio, which is exactly the same type of vague use of “the State” that sent Obamacare to the Supreme Court the second time.) Essentially, older people who generally need more healthcare will have to pay a lot more for bare bones exchange plans, and have fewer subsidies to help.
An enterprising insurer (in other words, all of them) may propose a plethora of applicable exchange products—a few low-premium products and a lot of higher-premium ones—within rating areas in order to game the median. Then make a big marketing push to millennials for the lower cost plans. A lot of people in their 20s make less than 350 percent FPL. Think students, entry-level employees, and singer-songwriters. The high deductibles and copays won’t matter as much to this group because it’s a heathier demographic.
While the Senate bill could give healthy people their 20s accustomed to health insurance with premiums nearly fully subsidized by the federal government, older and sicker people who need healthcare the most will be left to find their own way to affordable coverage.
Mark Cherry is a Principal Analyst at DRG. Follow him on Twitter at @MarkCherryDRG.
Interested in hearing more expert analysis on the politics of U.S. healthcare? Register for our live webinar, taking place on Tuesday, June 27 2017 at 10 a.m. EST.