NCPA - National Center for Policy Analysis

Shrink Obamacare's Costs by Removing Rule Driving up Young People's Premiums

June 23, 2015

The decision on King v. Burwell will determine whether tax credits being paid in 34 states without their own exchanges are legal. If the Supreme Court makes the administration follow the letter of the law, billions of dollars of federal tax credits will continue to flow to 16 states, but not the rest. This will result in a political crisis giving Congress and President Obama the opportunity to fix Obamacare, says NCPA senior fellow John R. Graham.

Here is one suggestion: Remove Obamacare's rule forbidding accurate premiums by age. The difference in rates between young adults and older ones can be no greater than three to one. The actuarial consensus is that average health spending for 63-year-olds is five times that of 22-year-olds.

Last October, HealthPocket, an online insurance broker, measured the increase in premiums for every age group in 2014 versus the pre-Obamacare individual market and concluded they increased by double digits for every age group.

  • The increase for 63-year-olds was 37.5 percent for women and 22.7 percent for men.
  • The increase for 23-year-olds was 44.9 percent for women and 78.2 percent for men.
  • Scholars at the Heritage Foundation concluded Obamacare's age rating restrictions increase premiums for younger adults by about one-third.

Obamacare disguises these true premiums by offering health insurers tax credits to reduce the net premium people pay, thus fooling many into thinking premiums have gone down.

If the age rating restrictions were lifted, the premium for the second-lowest cost silver plan could easily be expected to drop to $270, a reduction of $66. The tax credit would drop by the same amount, $66, which amounts to a drop of over one-third from $191. Aggregated over the entire Obamacare population, this would dramatically reduce Obamacare's claim on taxpayers.

Source: John R. Graham, "Shrink Obamacare's Costs by Removing Rule Driving up Young People's Premiums," National Center for Policy Analysis, June 22, 2015.


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