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How to get millennials on Obamacare: Vision and dental

December 6, 2013: 10:14 AM ET

For Obamacare to work, the government would need to either raise the penalty substantially or make the health plans more appealing to young people.

By Cyrus Sanati

obama-retirement-packageFORTUNE -- Vision and dental coverage could hold the key to attracting the young and healthy to sign up for Obamacare, potentially saving the new health care system from an early demise. These two relatively cheap services offer the so-called young invincibles a tangible benefit for spending their hard-earned cash on insurance plans, most of which have been designed to serve a totally different demographic.

Unfortunately, adult vision and dental care have been deemed nonessential services by the government, dissuading insurance companies from offering this key benefit to their customers through the federal and state health exchanges. Unless this glaring hole in coverage is filled, the system may not be able to attract the correct balance of healthy customers, leading to the collapse of the entire Obamacare system.

The Obama administration scored a win this week by following through with a promise to fix the bug-ridden federal health exchange website. Americans can now complete an application online and shop the various insurance programs being offered through the federal and state health exchanges with relative ease.

The majority of Americans who have signed up for coverage so far have tended to skew "older, sicker, and poorer," one insurance executive told Fortune. But now that the website is up and running, the Obama administration expects a more diverse lot to sign up for Obamacare -- namely, the young, healthy, and rich. Getting these so-called young invincibles to enroll in Obamacare is critical for its success, as it will be their premiums that will provide the bulk of the cash needed to cover the bills of the older and sicker people in their health plan. They will also be needed to cover subsidies for poorer Americans so that they can afford to pick a plan.

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Unfortunately, luring these people may be harder than the administration thinks. Harvard University released a new study this week where it polled young people (ages 18-29) on their thoughts on Obamacare. When asked if they would enroll, only 29% of respondents said they would either definitely (13%) or likely (16%) sign up for a plan through one of the health exchanges. An equal number said they would try to avoid signing up while 41% said they were on the fence.

Failure to attract this key demographic could set off what some economists are calling "death spirals" in the insurance market. This occurs when not enough healthy people sign up for coverage, causing the insurance companies to pay out more in care then they took in from premiums. The insurance companies would then raise premiums to cover the losses, which would further alienate healthy people from joining. This pattern would continue until the entire system simply collapses on itself.

The Obama administration estimates that roughly 40% of the 7 million people expected to sign up for health care through one of the Obamacare exchanges need to be young and healthy to avoid a potential death spiral scenario. But young people, especially those who don't already receive health benefits through work, seldom go to the doctor. They don't need to get their hips replaced or their cardiac valves stented. They don't need dozens of prescription drugs to control their cholesterol or lower their blood pressure. Indeed, many of the so-called essential benefits required as part of qualified health plans don't resonate with any of the needs of this key demographic.

This wouldn't be an issue if young people were forced to pay into the system as they do with Medicare and Social Security. But Obamacare gives people the ability to opt out of the system by paying a low penalty of just $695 after the first year. In many states, this is equal to two or three months of unsubsidized coverage under the worst plans being offered on the exchanges.

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It won't take long for many of the young invincibles to figure out that it would be more cost effective for them to simply pay the new penalty as opposed to forking over thousands of dollars for a health plan they neither need nor want. And since insurance companies can no longer deny people for preexisting conditions, if they ever were to get sick, they know they could simply sign up for a health plan at pretty much any time and receive all the benefits they need.

Convincing the sons and daughters of the "me" generation to voluntarily opt in to a socialized program within the confines of an inherently selfish society seems impossible. For Obamacare to truly work, the government would need to either raise the penalty substantially or make the health plans somehow more appealing to young people, without significantly raising costs for the insurance companies.

One of the most cost effective ways to do this would be to allow insurance companies to offer health benefits young people might actually use. While young people may not be getting their hips replaced, they are going to the optometrist and dentist pretty regularly and thus may be more willing to sign up for a health plan if vision and dental coverage was included.

It turns out that around 60% of adults between the ages of 18 and 34 wear glasses or contacts, according to a study conducted by the Vision Council. Of those young adults that don't use glasses or contacts, but need them, 38% said it was because they thought, "it would cost too much," the study found. For many young adults, the optometrist is pretty much the only medical professional they see each year -- besides their dentist. Around 66% of U.S. adults aged 18 to 34 went to the dentist at least once a year, with 63% receiving a teeth cleaning, according to a recent report by the state of Virginia.

Let's compare this to some of the more "essential" services young people would receive if they were to buy a health plan off the Obamacare exchanges. Take prescription drug coverage. It turns out that only 3.1% of adults aged 18 to 44 used prescription drugs in the last 30 days, according to the CDC. That compares with 17% of adults aged 44 to 64, nearly six times as high. How about hospital stays? Only 5% of adults aged 18-24 were admitted into the hospital in 2011, according to the CDC. That is half as much for those aged 55 to 64.

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Dental and vision insurance is cheap -- ranging anywhere from $5 to $10 a month on average for decent coverage. Folding that extra cost into insurance premiums, while decreasing some of the more lavish benefits targeting children and older adults could make buying a health plan less painful for the young invincibles. Sure, they still would be paying into the system way more than they are getting out, but at least they won't feel like total suckers for doing so.

Unfortunately, adult dental and vision coverage have been deemed to be "nonessential" under Obamacare rules. This has dissuaded many insurance companies from offering this type of coverage in their qualified health plans currently being sold on the exchanges. To complicate matters, some health and tax law experts tell Fortune that the rules actually bar insurance companies from offering any nonessential services as part of any qualified health plan that is eligible for a subsidy and sold through an exchange. This means that it might be illegal for insurance companies to even offer adult dental and vision coverage bundled into their insurance premiums. Some insurance companies have taken a risk by offering such coverage, these people say, but most insurance companies are afraid to do so for fear of being ousted from the exchanges.

"Providing this type of nonessential benefits is what is going to need to happen if the government wants the broad-based enrollment and healthy insurance pool that they will need to have these exchanges ultimately be successful," says Rob Lynch, chief executive of VSP Global, the nation's largest independent provider of eye care coverage. "I am skeptical they will get the young and healthy demographic to sign up for a health plan if there isn't something in there they want to buy."

Some exchanges do offer people the option to buy separate adult dental insurance at an additional cost, but that defeats the point. Such benefits need to be rolled in to the health plans to get them to pay into the broader health care system. Health insurance companies are required to provide pediatric dental and vision coverage as part of Obamacare, so it wouldn't be too much of a stretch for them to extend those benefits to adults as well.

Those insurance companies nervous about entering the dental and optical world could subcontract that part of the business out to third-party insurers that have more experience. VSP, for instance, which has nearly 60 million members, is providing the newly required pediatric vision coverage for 90 new health plans this year. It could do the same for adults, adding value to health plans.

The lack of choice and the rigidity of the exchange system will have to change if Obamacare is to be successful. The government has built in safeguards for the insurance companies during the first few years of the rollout to protect them from going under. Eventually, though, the insurance companies will need to stand on their own and make money. For this to happen, they will need to have the ability to offer services people want, like vision and dental coverage -- even if some bureaucrat has deemed them to be "nonessential."

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