As licensed insurance agents, we get calls daily from parents (all over the country) who are enquiring about California health insurance for their son or daughter. There\’s always a comment during the conversation reflecting the parent\’s frustration with their kid not appreciating the need for health insurance. So that\’s a big question…the Health Exchanges are predicated on bringing in the young Californians in order to succeed. Will they enroll? Will they join in enough numbers to make it all work? That\’s the real question. Let\’s look at why it\’s important and what the numbers tell us.

Guaranteed issue and health insurance mandates

There\’s a reason why the young need to join. On average, the young are healthier (health expenses double with each decade of a person\’s life with a bump during pregnancy years). There are two major changes to the California health insurance market as a result of health reform. Guaranteed issue is the big one and it means that a person cannot be declined due to health status or history. This is great news for the roughly 20% of applicants that get declined due to health but there\’s another key requirement in order to make this work. Everyone (or almost everyone) needs to share the risks. You need lots of healthy people to offset the few very unhealthy with expensive claims. Enter the young! You need lots if not most of them enroll. Now young people (especially men) are notoriously more risk tolerant. On their own, most of them might choose to spend health insurance premiums somewhere else. That\’s where the mandate comes into play.

Penalty for not buying California health insurance

The mandate is composed of a stick and a carrot. The stick is a penalty for not buying health insurance and the carrot is in the form of subsidies based on income levels. Almost everyone is required to buy health insurance and these measures work towards that aim. This also applies to most young people. The real question is whether the stick is big enough to overcome young people\’s inherent apathy towards purchasing health insurance. Great question and until we actually roll out Jan 1st, the best anyone can do is guestimate. We can look at it from the point of view a young person since we\’re now starting to see some rough numbers. So here we go!

Young people\’s premium and penalty comparison

The penalty for most young people in the first year will probably be 1% of their annual income. The subsidy is also based on income with pretty substantial subsidies up to 400% of the federal poverty level. Let\’s take a few typical examples based on different income levels. We\’ll assume a premium of $250/monthly for the Silver California Exchange plan.

Situation 1. 25 year old making $25K annually. In this case the penalty for not purchasing health insurance in California would be $250/annually. The annual premium amount is $3K. So $250 versus $3000. This person however, would qualify for a subsidy (400% of poverty is about $43K). That annual premium might come down to $600/annually or $50/monthly. So now we\’re looking at $250 in penalty versus $600 in premium. That\’s not a bad trade off and logic tells us that most young people would take this trade-off. Logic doesn\’t always apply with 25 year olds (we\’ve all been there) and there will still be less participants than the drafters originally planned on. We only say this because we speak with the potential demographic (or their parents to be exact) daily and they don\’t exactly see the value of health insurance. Put it this way, they don\’t want cheap insurance…they want free insurance. The only way to get free in the reform bill is if you make less than 138% of the Federal Poverty Level. What about a young person that makes more?

Situation 2. 25 year old making $50K. This is going to be tricky. There will be no subsidy at that level of income and the premium is still $3K annually. It\’s going to be tough to convince a 25 year old making $4K monthly to spend $250 on premium based on our experience even with the constant badgering of mom.

Why it\’s so important that the young enroll in the California health exchange

A young person with very significant medical expenses or who is expecting one-off large expenses (knee repair for example) will get the coverage for sure. We need lots of healthy young people to not only offset this group but the older and more medically expensive people who will also enroll. We\’re concerned only because we actually speak to people daily in this situation and we know their view on health insurance. It will be a tough sell and ultimately, the expectations will likely be revised downward after the initial roll-out.

Dennis Jarvis is a licensed agent whose focus is helping people and companies find cheap California health insurance. More info: Will Young People Enroll in the California Health Exchange?

Dennis Jarvis is a licensed California health insurance agent with extensive knowledge of the Individual and Small Group California health insurance market. http://www.calhealth.net

Author Bio: Dennis Jarvis is a licensed agent whose focus is helping people and companies find cheap California health insurance. More info: Will Young People Enroll in the California Health Exchange?

Category: Finances
Keywords: california health exchange,california health insurance