Even with federal subsidies, those higher premiums will be unaffordable for most young Americans, who are more likely to have lower incomes.
According to a five-city survey conducted by the American Action Forum, community rating will contribute to a 190-percent rate increase for younger, healthier people living in Milwaukee. Across all five cities, the average premium hike for young people will reach 169 percent.
To make matters worse, community rating-fueled premium hikes won’t just affect young people - by 2014, small businesses with up to 50 workers will face them, too. And by 2016, the hikes will hit all companies with less than 100 workers.
This will represent a dramatic rating shift for small employers in the 42 states where rates are based on a number of factors including broad age differentials.
In 49 states, employers with between 50 and 100 employees don’t have to shop in the small-group market but rather in a mid-market akin to the way larger groups purchase coverage. That grants them greater choice of health plans and more rate flexibility.
Lumping all these firms together may seem like a good idea because it will increase the size of the health insurance pool. But it will drive premiums up for everyone by moving more employers into the the mandatory modified community rating structure.
If premiums spiral upward, millions of young people will choose not to buy coverage -- whether on their own or through their employers -- and instead pay fines the law prescribes for being uninsured. If there aren’t enough young people paying into the insurance pool to subsidize coverage for older Americans, premiums will shoot up even further.
This process can repeat itself again and again, resulting in what actuaries call a “death spiral” of higher and higher premiums -- and lower and lower coverage rates.
For evidence, look to the eight states that adopted community rating and guaranteed issue rules in the 1990s. According to a study from Milliman, a consultancy, the insurance markets in all eight experienced death spirals to some degree. Two states ultimately abandoned their reforms.