The Trump administration is thinking about letting insurers on the Obamacare exchanges charge older people more and younger people less -- the move would require a very twisted reading of the Affordable Care Act. According to the Huffington Post, “Today, premiums for the old can be only three times as high as premiums for the young, which is what the Affordable Care Act stipulates. According to sources privy to HHS discussions with insurers, officials would argue that since 3.49 'rounds down' to three, the change would still comply with the statute.”
Nicholas Bagley argues this move would be illegal, which it probably is -- but it could actually increase the number of people using the exchanges next year. Given the makeup of the ACA exchange population and the convoluted way affordability tax credits (APTC) are applied, this move could have a modest net gain in exchange enrollment. Using data from the Kaiser Family Foundation Health Insurance Marketplace Calculator makes it easier to understand why.
Subsidies under Obamacare are designed so that you pay no more than a set percentage of your income for the second cheapest silver plan, as long as you make less than 400 percent of the federal poverty level (roughly $47,000). For example, as a person making $46,000 a year, you will get as large of a tax credit as necessary so that you are spending only 9.69% of your income ($371 per month) on premiums to get a silver plan. Whether your premiums are technically $400 a month or $3,000 a month has little impact on how much you pay. Since average silver plan premiums for adults 50 and above are well over $371 per month, all older people who currently qualify for tax credits on the exchanges are effectively protected from any premium increase that would arise from this Trump policy change. It would cost the government more -- not these consumers.
This new "age band" of 3.49-to-1 would matter to older people on the exchanges who are making over 400% of FPL because they get no subsidies. However, almost no one making over 400% FPL actually uses the exchanges. According to CMS, last year just 2% of people who bought coverage on the exchanges made over 400% of FPL. On net, this means relatively few older people using the exchanges would be impacted significantly. (Note: There are many who do buy individual coverage off the exchanges who could be affected, but this group is not well studied. In general, the higher an individual's income, the more likely they are to have employer-provided insurance.)
On the other hand, this change in the age band would reduce premiums for younger people using the exchange -- and the change could impact a large number of them. Since premiums for younger people are already lower, they are less likely to qualify for subsidies. For example, an average 25 year-old making only $36,000 would receive no tax credits. In addition, since actuarially speaking, young people use about one-fifth as much health care as older people, this change could make insurance seem like a better deal, causing more young people to sign up next year.
A Rand analysis from two years ago projected that a much larger increase in the age band (making it 5-to-1) would on net increase the number of people using the exchange -- more young people would get insurance, and there'd be only a relatively small drop in coverage among older wealthier individuals.
Democrats initially chose the 3-to-1 age band as a compromise, back when they envisioned the ACA exchanges being a much larger, more popular, and transformative policy. They envisioned the exchanges as a tool that would become popular with people of all income levels and businesses. The exchanges, though, haven’t turned out to be nearly as popular as once predicted, and the program is now primarily for people of limited means. With that in mind, increasing “premiums” on those on the exchange who aren’t paying the full price anyway and lowering premiums for those who are doesn’t seem like a terrible move.