The legislation is designed to get millions of young people to buy health insurance, using a mixture of subsidies to make coverage more affordable and penalties for people who remain uninsured. The industry has stepped up efforts in recent years to get those people covered, but so far its free-market approach has met with a tepid response.
The reasons young people forgo coverage are many, according to consumers and consultants. Policies are too expensive, too skimpy or too complicated to persuade the roughly 13 million uninsured people between the ages of 19 and 29 that it is worth their money. Most simply gamble that they won't get sick enough to need expensive treatment. In industry circles, they have come to be known as "young invincibles."
"'Should I spend money on a ski trip or health-care premiums?' " said Paul Markovich, chief operating officer of Blue Shield of California, describing the rationale. "It's hard to see the value of insurance if you see yourself as healthy."
But consumers like Jenny Pham, a 27-year-old violinist and teacher from New York, says she doesn't lack coverage by choice. She makes about $3,000 a month teaching and performing. After rent of $1,200, she says insurance—which she has priced at about $250 a month—is out of her reach.
Depending on a person's income, federal subsidies envisioned by the Senate bill now under consideration could reduce that dollar figure significantly. Senate leaders have designed a young invincible policy for health-insurance exchanges that would offer young Americans catastrophic coverage and a few routine doctor visits.
Critics of the legislation say it is a giveaway to insurance companies because it hands the industry a sizeable new market without restricting profits or forcing it to compete with a government-run plan. But America's Health Insurance Plans, the industry's trade group, opposes the bill because of new taxes and regulations, and worries that the penalties are not stiff enough to make sure that younger people buy policies. The group says bringing young people into the system is essential to bringing down costs for everyone.
"If you are 25 and relatively healthy and have a choice between a $95 penalty and several thousand dollars for health insurance, it's not a hard choice to make," says Robert Zirkelbach, a spokesman for AHIP. The penalty starts at $95 for the first year and increases to $750 in 2016, says Mr. Zirkelbach.
Nearly one-third of the uninsured are between the ages of 18 and 29, according to the 2008 Census. But 17% of individual insurance policyholders, or 2.5 million people, are between the ages of 18 and 29, according to consulting firm McKinsey & Co. This group is worth $4 billion in annual sales for insurers, according to McKinsey. If insurers could lure in the additional 13 million young Americans, that would mean $21 billion in revenues, McKinsey says.
It could be the industry's last frontier for growth. Health-plan enrollment has been declining since 2006, as employers lay off workers or go without insurance, and rising premiums scare off many individuals. Of the major publicly traded insurers, all but Aetna Inc. have seen declines in commercial risk enrollment, which includes individual memberships. WellPoint Inc.'s enrollment dropped to 12.4 million at the end of last year, from 14.2 million at the end of 2006, while UnitedHealth Group Inc. is down to 9.4 million from 11.3 million over the same period, according to Goldman Sachs Group Inc.
"If you are presiding over a shrinking market and there's an opportunity to triple the size of a piece of it, it gets pretty exciting," said Paul Mango, head of McKinsey's health-care consulting practice.
In the past several years, insurers have been competing for this "good risk" in the market with new plans meant to seem hip. Market leader WellPoint in 2004 launched its "Tonik" policies—with tiers of coverage called "daredevil" and "risk taker"—in California, and has since expanded to six states and sold 224,800 plans. Aetna, which just started a Facebook page, bought a student-health company several years ago and boasts of doubling membership to 500,000.
UnitedHealth started pitching short-term policies to recent graduates last spring, while Blue Cross plans in Pennsylvania and Vermont are pitching policies on college campuses. Last month, HealthNet Inc. landed a contract for Stanford University's 8,000 students.
But many young consumers still find health insurance too expensive and confusing. Andria Tieman of Providence, R.I., was uninsured for the majority of her 20s as a graduate student and now is uncovered in a part-time job at age 30. Of health insurance she says, "I don't understand most of it, and I know I can't afford it, so I don't even look. Why tease myself?"
The plans say they have tried to design policies to include coverage that young people might use, such as dental and dermatology. At UnitedHealth, prices on short-term policies start as low as $45 a month. Blue Shield of California has a plan for $52. It's hard to reduce prices by much more, say insurance executives.
But the trade-offs are off-putting: high co-pays and deductibles (Blue Shield of California's is $2,900), and big benefit gaps. Blue Cross Blue Shield of Minnesota, for instance, is promoting a plan in university areas that doesn't cover maternity, and members can't switch out of it if they get pregnant.
Some insurers are seeing moderate growth. UnitedHealth says applications by 18-to-30-year-olds were up 12% in the fourth quarter of 2009, compared with a year earlier. And Highmark Blue Cross Blue Shield says members between 19 and 29 are its fastest-growing market, increasing 12% last year.
But plans can experience high turnover—Blue Shield of California sold about 47,000 policies to the 19-to-29 crowd last year, but only 17,000 re-upped when their policies lapsed. Overall, individual plan enrollment for people between the ages of 18 and 29 has increased by just 140,000 members between 2004 and 2008, according to McKinsey.