Adjusting subsidies for younger ACA enrollees could lower costs for all: study

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Providing more generous subsidies for younger Americans on the Affordable Care Act (ACA) exchanges would result in lower costs for ALL enrollees, a new study found.

The study, by Pietro Tebaldi, an economist at Columbia University, was published by the National Bureau of Economic Research. The analysis suggests that by making ACA products more attractive to younger Americans, exchanges could create larger insurance pools, which would lead to a stronger economic base for the exchanges. In the end, the paper argues, this would bring enough money into the system to lower costs overall.

“Younger individuals are, on average, less willing to pay for health insurance, more price sensitive, and cheaper to cover,” Tebaldi wrote in the study. “Therefore, a counterfactual subsidy design that favors this group … would, upon increasing the proportion of young enrollees, lower average cost and increase average elasticity of demand. This in turn would place downward pressure on equilibrium premiums, and reduce subsidy- spending per-buyer, while also ensuring that all enrollees, including the older ones, pay less than under the original ACA design.

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A system that favors older, sicker patients

The current health care system in the U.S. is very focused on older Americans, research suggests, and this is reasonable, since the majority of health care spending and demand comes from older people.

However, by ignoring the needs and concerns of younger consumers, insurers may be discouraging enrollment of people who will pay into the pool over a long period of time without spending much, since they are healthier overall.

Using data from California, which has one of the nation’s largest ACA marketplaces, the study found that younger consumers (under age 35) value insurance coverage features at about 50% compared to older consumers. At the same time, they are twice as responsive to premium changes, meaning that an increase or decrease in premiums is twice as significant to them.

More young enrollees=lower costs for everyone

In theory, the study found, increasing subsidies for younger enrollees lowers cost in the system overall.

“The results show large potential gains from increasing subsidies for young individuals,” Tebaldi wrote. “As long as each $1 decrease in subsidies for those aged 36-64 is compensated by a $4 increase in subsidies for individuals under 35, all buyers are better off, facing lower subsidized premiums, and experiencing higher consumer surplus. Marketplace coverage increases, while average cost and average subsidies are lower. The extent to which these ’Pareto improvements’ are possible represents a promising direction for the design of subsidies in ACA marketplaces and is informative for similar regulatory contexts.”

The study concluded by acknowledging that more research is needed in this area. Things like public option plans, risk adjustment models, and regulations around quality need to be studied to make models more accurately reflect real-life situations, the study said.



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