Health Insurance

Why The Health Plan’s Impact Will Be Different In New York and Vermont Compared To The Rest of The Country

In New York and Vermont, compared with other states, the proposed American Health Care Act won’t bring as much benefit to its younger enrollees as in the rest of the country, or as much financial pain to its older ones.

That’s because state laws in both states would override a key AHCA provision that governs how much premiums under the AHCA can vary by age. In addition, the legislation changes federal tax credits for coverage in a way that’s likely to further boost net costs for younger New Yorkers and Vermonters who enroll in the plan.

The Age Effect--Or Lack Thereof

The AHCA, as now written, allows insurance companies to increase the differential between what they charge younger consumers, who are generally more healthy, and older policyholders, who end to use health care the most. The ACA now allows premiums for the old to be as much as three times higher as for the young, to reflect that differences in usage.

Nationally, the ACA’s proposed replacement allows that gap in premiums to widen still more, and allows older consumers to be charged as much as five times more for the same coverage. But in both New York and Vermont, state regulations disallow any differential pricing of healthcare premiums based on age. Partly as a result of that restriction, even under Obamacare, younger enrollees in those states now pay more for plans than their peers in other states. Assuming no change to state laws, that flat rate structure will survive after the AHCA is introduced.

That means that while young people in most states see their healthcare premiums decline under the AHCA, to more closely reflect the risk of insuring them, young New Yorkers and Vermonters will continue to be charged as much as older enrollees in the plans.

The Tweak To Tax Credits

Compounding that bigger burden on the young in New York and Vermont will be the way in which the AHCA promises to alter the formula for how much enrollees can claim in tax credits for their premiums. Under Obamacare, credits were based on income (with poorer people receiving more help), and the cost of insurance in the county where you live. By contrast, the AHCA provides credits based entirely on the age of the enrollee; how much they make and the cost of premiums aren’t considered.

Compared with Obamacare, the net result in New York and Vermont will be a reduction in subsidies for young people who have low incomes--as many new workers do. And where tax credits under Obamacare for New Yorkers and Vermonters recognized the relatively high premiums in those two states, the AHCA doesn’t follow suit. As a result, younger enrollees in NY and VT will get the same credit to pay their high premiums as those who live in places where health insurance would cost them far less.

The Advantage For The Old

These shifts could, however, represent a silver lining for older New Yorkers and Vermonters. They should be spared the sharp increases their counterparts will face in other states under the proposed AHCA, since higher premiums for young New Yorkers and Vermonters will subsidize higher costs for the old.

The tax-credit changes under the AHCA also promise to be less pronounced for older enrollees than for young ones, in all states. With a formula based strictly on age, older enrollees will receive more help than younger ones.

The Disadvantage for The Young

Here’s how all this might this affect a young person who lives in one New York county. In Orange County, north of New York City, a 27-year-old making $30,000 a year currently qualifies for a tax credit of $4,900 under the ACA. according to the Kaiser Family Foundation. Under the AHCA proposal, that credit would drop to $2,000, adding nearly $3,000 a year to his or her net cost of health insurance.

Add to that impact the possible increases that are anticipated to premiums. While exact premiums under the AHCA are not yet known, the non-partisan Congressional Budget Office estimates an overall average rise in premium costs across the country of 15 to 20 percent. Conservatively, based on Kaiser data and the CBO estimate, that could raise that New Yorker’s total premium by some $717 a year, to $5,500.

The bottom line for our typical young New Yorker: With the change in subsidies also factored in, their annual net cost for coverage would almost triple--from around $50 a month to about $290. That rise represents an additional $2,900 or so a year--a big extra bite out of a salary of $30,000.

Jonathan Wu

Jonathan is the CEO and Co-Founder of ValuePenguin. He reports on an array of topics, including the financial services industry, healthcare reform, and financial products for consumers. He previously worked in the financial services industry, including at such hedge funds as Avenue Capital Group.