BRIEF
How Does Enrollment of
Young Invincibles
Affect Premiums in the
ACA Individual Market?
C O R P O R AT I O N
Reduced young adult enrollment is associated
with only modest premium increases
T
he individual health insurance market
involves people buying coverage directly
from an insurance company. The ACA
established online marketplaces (also known as
exchanges) for people to buy insurance in this
Enrollment in the ACA Marketplaces
by Age in 2013–2014
Young
ages 18–34
28%
24%
Middle aged
ages 35–44
market. Collectively, the individual market includes
non-employer plans offered both on and off of the
exchanges.
To keep health insurance affordable in this market,
insurers need to spread risk across a broad pool
of enrollees, including younger, healthier people,
to offset the costs of older, sicker people. Some
have theorized that low enrollment among younger,
48%
healthier populations could cause insurers to raise
premiums, which in turn could price increasing
numbers of buyers out of the market, leading
Older
age 45 or older
Enrollment figures from the U.S. Department of
Health and Human Services show that during the
first enrollment period (2013–2014), 28 percent of
enrollees in the ACA’s Marketplaces were ages 18
to 34; in contrast, 48 percent of enrollees were age
45 or older. The proportion of young adult enrollees
gradually increased over the course of the first
enrollment period; for example, the share of young
adults was 24 percent at the end of December 2013,
25 percent by March 1, 2014, and 28 percent at the
end of the open enrollment period.
{
ultimately to a market collapse. Does the affordability
of premiums in the individual market under the
Affordable Care Act (ACA) depend on a given level of
young adult enrollment? Will premiums spike if young
adult enrollment declines?
To address these questions, a RAND team used the
COMPARE microsimulation model to estimate the
effects of changes in young adult enrollment in the
individual market on premium prices.
The term young invincibles refers to young adults who believe they will not get sick
or injured and are, therefore, less likely to purchase health insurance than older adults.
}
The ACA cushions against the effect of
lower-than-expected enrollment among young adults
If young adult
enrollment
falls by about
If young adult
enrollment
rises by about
premiums
fall by about
7
3%
percentage
points
RAND’s baseline 2015 scenario estimates that
approximately 27.2 percent of individual market
enrollees will be young adults. This includes enrollees
in Marketplace plans and individual plans that adhere
to the ACA’s rating rules.
If the level of enrollment among 18-to-34-year-olds
turns out to be lower, premiums will increase, but
not by much: A one percentage point reduction in
the share of young adult enrollees in the individual
market is associated with a 0.4 percent increase
in premiums (see figure below). So, for example,
if young adult enrollment were only 20 percent
instead of 27 percent, premiums would increase
by approximately 3 percent.
+3%
Percent
change in
premiums
7
premiums
rise by about
percentage
points
3%
This limited effect is partly driven by the ACA’s
subsidies—tax credits that insulate eligible enrollees
from premium increases and thus encourage lowerincome young people to stay enrolled, even if other
young adults who are not subsidy-eligible drop out of
the market. The effect is also partly driven by the fact
that many older people can be “good risks” (that is,
individuals who contribute more through premiums
than they spend on health care). Because older
adults can be charged up to three times as much as
younger adults, RAND estimates that over 80 percent
of 55-to-64-year-olds spend less than premiums (net
of administrative costs). The fact that there is a sizable
fraction of good risks across all age groups acts to
stabilize premiums and reduces the impact when
younger adults drop out of the market.
Change in Premiums Is
Only 0.4% Up or Down
for Every 1 Percentage
Point Change in Young
Adult Enrollment
Baseline COMPARE enrollment estimate, 2015
0
27.2%
−3%
−6%
20%
30%
Percent of enrollees between ages 18 and 34
40%
What the Data Tell Us
This brief describes work done
in RAND Health documented
in Assessing Alternative
Modifications to the Affordable
Care Act: Impact on Individual
Market Premiums and Insurance
Coverage, by Christine Eibner
1
There is no specific level of young
adult enrollment required to stabilize
premiums in the individual market.
and Evan Saltzman, RR-708DHHS, 2014 (available at www.
rand.org/t/RR708). To view this
brief online, visit www.rand.org/t/
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2
Younger individuals do not bear
the full burden of older individuals’
spending, in part because the ACA
allows insurers to charge older
enrollees up to three times more
than they charge younger ones,
thus reducing the risk posed by
older enrollees.
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RB-9812/2 (2015)
3
The ACA’s tax credits encourage
healthy people of all ages to enroll
in coverage, which stabilizes
premiums for everyone.