Reforming Obamacare: Start With the Young

Reforming Obamacare: Start With the Young

After the lofty promises that led to passage of the Patient Protection and Affordable Care Act, young people are waking up to how much the law targets them with higher costs. Yes, those lucky enough to be covered on their parents' health plans can postpone the consequences until they are 26. But for the rest, the situation is grim: Young people face disproportionately high costs to pay for coverage and a crushing burden of taxes that could impede their future prosperity.

Young people 20-35 constitute about 20 percent of America's population, but they represent 46 percent of the uninsured -- and, according to an analysis by Manhattan Institute scholar Avik Roy and colleagues, a 25-year-old male living in California and earning just $29,000 a year pays more than $1,140 more per year for health insurance due to the ACA. More broadly, the study analyzed the situation for childless, unmarried young men and found that "more than 90 percent of the subsidy-eligible population would face higher premium costs under Obamacare, even when you take the subsidies into account."

Let's look at the interests of young people realistically. Buying health insurance is not a priority for most young adults precisely because they are young and healthy. They have many pressing demands on their resources in furthering their educations, paying off student loans, raising families, and perhaps buying a home or starting a new business. We need to give young people the freedom to use more of their money as they choose.

There is a better path. Imagine a world in which young Americans are truly free to make their own health-care decisions. They are free to choose their own health insurance and buy it through less expensive competitive national markets. They can voluntarily join groups to buy the health insurance that best suits their needs. And they are guaranteed coverage at fair prices.

This health-insurance market would also give people a choice in the design of their health-insurance policies, prohibit denial of coverage by participating insurance companies, and allow young people to keep the coverage they now have or select a different policy from competing plans. But insurers would not be forced to discriminate against young adults, as they are in Obamacare, which requires insurers to charge the young at least a third as much as the old. And since we are envisioning all this happening in a real market, it would be feasible for insurers to profit by offering this insurance to young people.

Can this be done? Yes. To illustrate, let's start with a simplified case in which every young adult born in 1992 is free to select a comprehensive health-insurance policy to cover all non-elective medical procedures. They are able to select each January from competing plans on a health-insurance exchange.

The policies are personal and portable and likely have a deductible, co-insurance payments, and an annual out-of-pocket limit. Young people who decide to participate in any given plan pay the same premiums as anyone else in the Class of 1992 who made the same choice.

Companies can agree to postpone some or all of the premium payments for those who currently couldn't afford them. Arrangements even can be made for Americans to help the needy pay premiums through voluntary check-off boxes on their federal income-tax returns.

As time passes, the Class of 1992 continues to pay the same premiums as others of their age who choose the same insurance, and are guaranteed that they can have continuing coverage at these prices.

Insurance companies collect the premiums and process the claims. If they choose to, the companies participate in a national reinsurance pool that helps to even out their risk by sharing it. This "insurance for insurance companies" promotes a profitable environment for the insurance providers. That is, if one company's 1992-born group spends more (or less) on health care in a given year than the national average for this group, then it receives payment from the pool (or makes a payment into the pool).

Health-care providers are required to post their prices. Insurers keep costs down and service quality high because they compete across state lines for customers who are now much better informed and more engaged in their health-care choices. Deductibles and coinsurance create the incentive for consumers to care about costs. Information about volume of services provided can also be listed, plus other quality information. Competition among health-care providers forces their prices to be honest and low.

In some cases, a young person may be on a company health-care plan. A freedom-of-choice provision for the young lets them use as they choose whatever health-care dollars are available to them -- whether through employer contributions, private charity, or government subsidies. Our 22-year-old may keep whatever insurance he (or she) has, but he also has the option of taking the employer contributions devoted to his health benefits to buy insurance. If he saves money by buying from a nationally competitive company, he keeps the difference tax-free.

An important detail involves keeping our 1992-born Americans continuously insured. Penalties for lapsed coverage and open-enrollment periods are among the tools to accomplish this. Others are available.

The reality could be even better than this simplified description: Pools could be created for each age and gender grouping, coverage for elective medical procedures for those who want them could be made available by policy riders, policyholders could be allowed to select from a range of policy options involving deductibles, and the young could be allowed to choose the best for themselves of these options, with the resulting policies priced actuarially fairly.

The ability to buy insurance and to continue one's insurance without regard to preexisting conditions would be made a reality for young adults through the reinsurance feature and inducements to continuous coverage. As time passed, the arrangements just described could be extended with adjustments (such as high-risk pools) for groups involving those over the age of 35.

When good economics, good politics, and justice merge, we should pay attention. This is more than an adjustment at the margin; it is a transformative idea for our youth. And it is doable. It would totally reform Obamacare, put the young on the side of their true defenders, and start the process of forcing the rest of the insurance market and health entitlements to actuarial fairness and genuine competition.

As we look for new and better solutions, it would be good to start with the young.

Earl L. Grinols teaches in the Robbins Institute for Health Policy and Leadership, Baylor University, and is co-author of Health Care for Us All (Cambridge University Press, 2009).

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