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Why Young Sign-Ups Aren't A Healthy Sign

Much of the attention from the public and the press has been on who has signed up for ObamaCare exchange plans, but what happens in the off-exchange market is also important.

Insurers selling plans on the exchanges must group people who enroll in ObamaCare-compliant plans purchased off the exchange in the same risk pools as those buying on the exchange.

With at least a couple million people who are ineligible for exchange subsidies buying directly from insurers, or going through eHealth's online insurance marketplace, their age-mix and health status will help determine whether insurers need to push premiums higher to offset their risk.

Insurers have been slower to report the details of their off-exchange enrollments.

But Internet-based eHealth (EHTH), which in May released data on ObamaCare plan applications over the prior six months, seemed to offer great news: 42% of enrollees were in the key young-adult demographic.

A Risk Pool Of Their Own

Yet a closer analysis explains why the eHealth enrollment data, rather than cause for celebration, reflect a largely missed opportunity in the near term and a likely cause of regret in years to come.

The reason: 14% of eHealth enrollees opted for catastrophic coverage, including close to half of 18- to 29-year-olds.

Under ObamaCare, catastrophic plans cover a younger and healthier risk pool that is separate from the main pool comprising bronze, silver, gold and platinum policyholders.

The popularity of catastrophic coverage among young adults — primarily those ineligible for subsidies — is easy to understand. Department of Health and Human Services data for the 36 states using Healthcare.gov show that the lowest-cost bronze plan, on average, costs 26% more than the cheapest catastrophic plan. Yet bronze plans only cover about 5% more of the insured group's costs.

Setting aside this group selecting catastrophic plans in a younger, healthier pool significantly alters the profile of eHealth's additions to ObamaCare's primary state risk pools — and not in a good way. The 42% young-adult share among eHealth enrollees — an over-representation relative to their 40% share of potential ObamaCare enrollment — falls to about 34% of entrants to primary risk pools, an IBD analysis finds.

The risk is that as premiums rise over time, these lower-priced catastrophic policies will look increasingly attractive to the young and healthy, leaving the main risk pool older, in poorer health and more costly.

Premium Shift

A possible preview of that future came in the past week as insurers announced 2015 rates. In Connecticut, Anthem Blue Cross Blue Shield proposed to lower its catastrophic plan premiums by 4.8% while raising premiums for its other plans by 12.4%, the Connecticut Mirror reported.

The Affordable Care Act specified that all insured would be grouped in a single risk pool, but HHS regulations adopted last year effectively created a separate catastrophic pool primarily for those up to age 30.

The apparent reason HHS made this change, despite warnings from liberal groups like Families USA, was to make coverage affordable for young adults who earn too much to qualify for subsidies. The Obama administration judged that the downside would be limited because people can't use subsidies to buy catastrophic coverage. Yet, catastrophic coverage is already looking like a better deal for some subsidy-eligible young adults earning about 250% of the poverty level or higher.

Catastrophic coverage also is available to older people who qualify for a hardship because bronze coverage costs more than 8% of income. The White House extended that hardship to anyone receiving a plan cancellation notice.

On the federal exchange, about 89,000 people, or 12% of people signing up without subsidies, opted for catastrophic policies. Of those, 85% were age 34 or younger.

Overall, HHS reported that young adults accounted for 28% of 8 million sign-ups. Once the numbers are adjusted based on paid enrollment and catastrophic selections, the young-adult share may fall to 25%.

The eHealth data are the most detailed available on ObamaCare plan purchases off the subsidized exchanges, but they have limitations.

The data cover 213,000 applications submitted during the open-enrollment period, just a fraction of a few million ObamaCare policies that have been sold off the exchanges.

It's possible that eHealth shoppers are younger and more tech-savvy than typical off-exchange buyers, who may go directly to a big insurance carrier with whom they have an established relationship.

Further, the data don't winnow out plans sold in a state by carriers who aren't participating in that state's exchange and who aren't included in ObamaCare's big risk pools.

The risk-pooling requirements go hand in hand with the law's guarantees that coverage will be available to all at a cost that doesn't take health status into account. To further discourage carriers from seeking out the most profitable customers or shying away from the sick, ObamaCare transfers payments from carriers with below-average risk to those who take on above-average risk.