Social Question

JLeslie's avatar

Does insuring adult children to age 26 increase profit or decrease it?

Asked by JLeslie (59780points) December 5th, 2016 from iPhone

This question is a financial question, it is not a health question.

ACA required that insurance companies allow children up to age 26 be able to stay on their parents’ health plan. It seems to me young adults are money makers for health insurance companies. Sure there are people in their early 20’s that have major health problems, but most don’t. I would be a lot of young men don’t go to the doctor for years in a row. I guess the possibility of a young woman getting pregnant adds some expense to the insurers bottom line.

So, my question is, if you know the numbers, do insurers actually come out ahead complying to that particular provision in ACA?

Do I have a motive for my question? Yes. The Republicans are talking about how they would keep that in the health plan they propose, I’m suspicious that it’s actually something the insurers are happy to keep in, because it makes them money.

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22 Answers

gorillapaws's avatar

I don’t know for sure, but prior to the ACA, women in the peak “child bearing years” had pretty steep premiums. That has since decreased, as men of the same age have increased in expense.

JLeslie's avatar

@gorillapaws Do they need to be dependents to stay on the insurance? Financial dependents?

johnpowell's avatar

@JLeslie :: It is a function of remaining on your parents plan and being claimed as a dependent on their taxes.

edit :: If you are not claimed as a exemption (dependent) it does not apply to you.

LornaLove's avatar

I can only answer as a prior Financial Broker. I dealt with all aspects of finance including medical aids, in South Africa. The basis could be pretty much the same.

Traditional medical aids (or medical insurance) do fill their coffers and keep funds high from younger members. So, yes, the younger member’s contributions support the highest users which are statistically older members.

I call these traditional funds because it was found that once the particular base grew older, the funds grew lower. So it was a good way to fund a medical aid, because let’s face it, we all grow old and need support from the primary funding financing base.

Once the members grew older and there were no newer members the funds became so low that never mind profit, just usual claims could not be fulfilled. This caused some funds (or insurers to shut down completely). This was not very nice for contributors who had also planned and paid for by a minimal waiver that once they grew too old to fund their medical aid, the fund itself would pay the premiums for them. So in retirement, they would have protection.

In South Africa, they launched a new generation fund and it became a lot more complicated, but to some degree, it did rule out relying on younger members funding older members. They would do this for e.g. as it is quite a complicated strategy, tell members to fund certain items themselves, pay additional funds on top of medications, also only allow a certain amount of scans, X-rays etc., per family or person in order to stop large dipping into the funds by one particular person or family. I hope this helped in some way?

Kids or young adults that stay on, are still being ‘funded’ so funds are still going into the main fund.

LornaLove's avatar

Yes, forgot to mention. All families enjoy a reduced tax rate if they fund medical aid up to a certain amount. Some countries even refund some portions of contributions.

Mariah's avatar

There’s no way this rule is making insurance companies money. Take Matt for example: he’s basically covered for free, because he’s on his parents’ plan, and he has a younger sister, so they’d be paying the extra for a family plan regardless of if he got his own insurance or not. So for all children that aren’t only children or youngest children, insurance companies are suffering pure loss through this policy. I can’t imagine what they could be gaining from it to offset that.

I don’t think it should be allowed, honestly. Matt is financially stable and perfectly capable of buying his own insurance. He should have to pay into the system. I’d support exceptions for people in less fortunate financial situations.

johnpowell's avatar

Do Matt’s parent’s claim him as a exception? As in they pay the majority of his expenses?

If not he is probably breaking the law.

edit :: Looks like I am wrong. You can still get it even if not a dependent. That is bullshit.

Cruiser's avatar

As a business owner I now face the choice to carry the health care costs of an employees’ dependant well into their adult years. I know none of the Jellies here buy my products but those who do pay for this increase in costs of mine and other products you might purchase….so it goes. No such thing as a free ride.

Mariah's avatar

Yeah it’s all on the up and up JP, as you found. The policy protects a lot of people – kids graduating and having trouble finding jobs (got lots of friends in that situation), kids swimming in student debt (Matt has heavy loans but is lucky that his job pays enough to offset that), kids in grad school…but I’d prefer if the policy took those things into account rather than just going by age, because itd be better if more young healthy folks were paying in.

Cruiser's avatar

@Mariah One of the most salient comments I heard about the ACA was from a then pre-ACA recent college graduate salesman who called on me. He was 26 and had just paid off his college loans. He was healthy and needed nothing more than a yearly checkup. He said had he been saddled with having to buy health care coverage there was no way in his mind he would have been able to pay off his college debt.

I know you are grateful for your health care coverage and he was grateful he did not have to be burdened by it’s costs and is out of debt. That was then…this is now.

Mariah's avatar

Can you clarify – was this before the ACA, and he had no health insurance during that time and was glad he wasn’t required to have it, or after ACA, and he was on his parents’ plan and glad he didn’t have to buy his own? Seems to me like he’d’ve had options that would work for him pre or post ACA (assuming he had supportive and financially stable parents).

Cruiser's avatar

@Mariah It was just before the requirements of the ACA. He was not on parents plan, flying solo without a net…just a healthy college grad with the goal to get out from under the college student loans he accumulated.

Mariah's avatar

Gotcha – well like I said I don’t think the ACA would have screwed him over as he was under 26 when paying off his loans, so he could have used his parents’ insurance, if his parents were cooperative. But I see your point.

Cruiser's avatar

@Mariah Put it in perspective that few think about. Catastrophic illnesses are the furthest thing from mosts minds especially the vibrant and young. I was one of them. Paid out of pocket back then as I knew if the “Big Guy” wanted to call my bluff I was toast either way….why spend money on insurance I did not then really need?

Mariah's avatar

Oh I know I get it. I’m honestly glad that’s not a risk young people can take anymore (or, at least, there’s less motive to take it, since they have to pay a fine to opt out of health insurance). Because yeah every young person feels invincible but we all know that some of them, like me, will have catastrophic illness out of the blue, and then they’re utterly fucked if they’ve decided to take that gamble.

JLeslie's avatar

Here’s some more info I found out. In the state of Maryland you pay more money if you have more dependents on your plan according to a friend. So, it’s not simply a family plan, the 5 person family pays less than the 6 person family.

I know in the past I had choices of single, couple, or family, I don’t know if that exists anymore.

It sounds like overall insuring to 26 might be an opportunity loss. A missed opportunity to insure the 25 year old as a single in his own. But, who is he going to pick for insurance? His parents same company? Or, the one his job offers?

I’m shocked kids don’t have to be financially dependent to be on the plan. I didn’t think extending to age 26 also included that the kid didn’t have to be a dependent.

LuckyGuy's avatar

I don’t think you need worry about the insurance companies losing money on it. They simply adjust the rates they charge for everyone. They have the flexibility.

Relax. The CEO of Aetna, with compensation in the +$20M range, calls Obamacare “an “Attractive Growth Opportunity” Forbes” .
I’m sure he can afford fuel for his yacht.

JLeslie's avatar

^^I’m not worried about them losing money, I’m critical of the message of Obama forcing the companies to cover until 26 and the message that republicans and Trump aren’t going to touch the age 26 parameter “we don’t have to worry about that.” I think it’s bullshit. Like we should all be so grateful to these presidents and political parties about it, when really I don’t think it takes much of any profit from the bottom line, and possibly adds money.

I’m skeptical. I think it’s a political game.

josie's avatar

Allowing people up to 26 to stay on their parents plan merely makes certain a group of premium payers who are generally healthy and tend not to utilize or buy in will be “in the pool”. Those 20 somethings are the key to paying for the old folks who utilize a lot. Same principle as Social Security as a federal program. The young workers are paying for the recipients, but do not collect until later.

LuckyGuy's avatar

@JLeslie I guessing here, but the Aetna CEO quote above backs up the idea, that the 26 is profitable for the insurance companies.
Before the new rule there were a few <26 year olds without coverage that ended up with very expensive diseases/conditions. They were not kicked to the street. They were treated.
We (taxpayers) ended up paying for them anyway. The hospitals eat the cost but we know they pass those costs down to customers who pay.

JLeslie's avatar

^^Right. That’s the thing, we are in a social system no matter what. Somehow they take from people who have the money to give to those who don’t have it, or just don’t pay. The thing is the sick pay. The hospitals get the money out of those who use the hospital. If all of society paid it would be less and everyone would be covered, but that doesn’t do anything about the CEO’s and stockholders also taking their money.

BellaB's avatar

It’s a moneymaker for insurers. We wouldn’t be offering the product if it wasn’t Insurers offered it before Obamacare – and will continue to do so (or so the actuaries tell me). We need that overall healthy group in our pool. A LOT of small family premums add up.

There’s a reason insurers fight to have alumni groups on their books – lots of recent grads in the mix with older grads – it’s $$$$.

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