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Home Publications Blogs Beat the Press For Obamacare It Matters If Enrollees Are Skewed by Health, Not Age

For Obamacare It Matters If Enrollees Are Skewed by Health, Not Age

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Monday, 13 January 2014 21:51

The NYT had yet another silly front page piece warning that Obamacare is about to go under, this time because not enough young people are signing up. If it keeps doing this, people will mistake it for a Jeff Bezos publication.

The point, which was shown in this Kaiser Family Foundation analysis, is that the age skewing really doesn't matter much for the success of the program. The fee structure of Obamacare is designed to somewhat favor older enrollees, but the gap is not very large. The Kaiser study found that even large skewing toward older enrollees would only raise the cost by 2.0 percent.

The real issue is the risk of a skewing by health condition. If healthy older people sign up it actually benefits the plan far more than if the "young invincibles" sign up since the older people will pay three times as much for their insurance and basically get nothing back from the program. (My readers only seem to know sick people in the age group 55-64. In the real world, many are quite healthy. I couldn't find a quick reference for costs of the 55-64 cohort, but the cheapest quintile of Medicare beneficiaries cost on average just $331 per person on average. Presumably the cost for the bottom quintile of the 55-64 group would be even less.)

Anyhow, any serious discussion of the progress of the program would look for evidence of skewing by health condition. Remarkably, this NYT piece concludes with some good evidence on the health condition of enrollees, but failed to note it as such.

It told readers:

"Of people choosing plans so far, 60 percent selected silver plans and 20 percent signed up for bronze plans. Thirteen percent chose gold plans, and 7 percent platinum coverage."

This means that 80 percent of the people who have signed up for Obamacare have signed up for plans that will leave them with substantial deductibles and co-pays. Someone with severe health problems will know that their costs will far exceed these deductibles, so they would sign up for the most expensive plans in the system. Since the vast majority have not signed up for the gold or platinum plans it is reasonable to assume that they are not in bad health.

 

Addendum:

NPR committed the same sin in its top of the hour news segment on Morning Edition.

The Post also featured the same story although it did reference the Kaiser study noting that age-skewing will not be a huge problem.

Comments (10)Add Comment
A bit more than that in Republican states
written by Ken Houghton, January 13, 2014 10:33
I'm just under 55. Even a mediocre plan for my family (2 50+ adults, 2 juveniles) is $1,400 a month on the exchange for NJ.
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written by david anderson, January 14, 2014 12:52
Why assume that people are choosing less expensive plans because they are healthy? Maybe it is because they cost less and that it what they can afford. You have been writing for years that the economy is down largely due to lack of consumer spending. Writing a check for health insurance is an expenditure like others, some equally essential.
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written by JDM, January 14, 2014 1:19
Well David, if they don't have much money and are needing lots of medical care, you'd expect them to come up with whatever would cost them less, insurance or paying for huge deductibles and copays. Since if they are in need of lots of medical care out of pocket extra costs would extremely quickly cost them far more than an expensive insurance plan, you'd expect them to opt for the expensive insurance plan since it would be, by far, their cheapest option.
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written by tom, January 14, 2014 7:54
Everyone is different. In my case, I have to decide what payments I can afford versus deductible and expected medical costs throughout the year. I know my wife will hit the deductible, whereas I most likely won't even come close. Looking at what a middle of the road policy will cost in premiums, I equal 3 healthy young people. Dean is right, it is not all about age. JDM is right, we all have to look at total cost for the year. This is not to mention any subsidy we might have to repay because our household income for 2 is pretty close to the max. If we go over and can't get our AGI back down, we have to repay on the subsidy which most likely we can't afford. Hell of a lot of variables in making the final decision. What seems to get lost in all this is the maximum out of pocket costs. It's good to know that even if I don't use my insurance all that much, medical bills can no longer wipe out my retirement accounts. Plus, you do get a couple of wellness visits with any insurance policy you buy.
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written by Alex Bollinger, January 14, 2014 9:24
If we're playing the anecdote=evidence game, then I'll put myself out there: I used a whole bunch more health care services in the past few years than my parents did, and they're in their late 50's (they had check ups and tests, but nothing was found).

@david: you're right, it is an expenditure. But one would hope that spending would come from people who have money to spare (rich people) or those who aren't constrained by bank accounts (the government) instead of people who would spend it on stuff even in the absence of overpriced insurance.

But you do bring up an interesting contrast. When it's the government that wants to spend money for poor people to buy food, it's all "How can we possibly afford that? The government is a family that has to tighten it's beeeeeeeeeeeeehlt!!!!!!" When a real family wants to tighten their belts and spend less on health care like their counterparts in other rich countries do, it's all "That's sooooooooooocialism!!!!"
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written by skeptonomist, January 14, 2014 9:37
Everyone is playing it by ear at this point. No one really knows how relatively healthy people will react when it comes to enrolling in a plan or paying the penalty, or even how many people are aware that they will have to pay a penalty. The penalty is small the first year and increases later so there will necessarily be some change in enrollment rates. The profit margin is slightly greater for enrolling young people and they are less certain to enroll so it's not surprising that propaganda is directed towards them. Insurance companies are aware of the uncertainties and may be prepared to take some loss in the first years - they have to compete for market share. By the nature of the program, their commitment must be for many years. So there is probably not some critical sign-up rate for young people but it is still important for them to sign up - they are the biggest variable, apart from the way state governments are cooperating or not. If enrollment is not satisfactory insurance companies will lobby for changes in the law - and would probably get them.
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written by skeptonomist, January 14, 2014 11:39
Here is some more on factors influencing the viability of Obamacare over the first few years:

http://healthpolicyandmarket.blogspot.com/2014/01/will-there-be-obamacare-death-spiral-in.html

There is actually a kind of prospective bailout for insurance companies, but for several reasons it seems likely that rates will be going up in a couple of years.
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written by PeonInChief, January 14, 2014 1:16
I don't think we can assume that people chose silver or bronze plans because they're in good health. Once people are out of subsidy, the monthly cost goes up--a lot. Many older people in this situation probably sign up for a silver or bronze plan because the monthly premium is already a quarter or their gross income. Then they just hope that nothing goes badly wrong.
Silver plans get cost sharing subsidies
written by BillB, January 14, 2014 1:47
There is a simple explanation for the overwhelming popularity of silver plans. Silver plans are the only plans on the exchange that are eligible for "cost sharing reduction" subsidies. All plans on the exchange are eligible for "premium" subsidies for households under 400% of the poverty level.

But only the silver plans are eligible for the additional "cost sharing reduction" subsidies available to those under 250% of the poverty level. These cost sharing reductions reduce the deductible and co-payments, effectively converting a lower cost silver plan to the equivalent of a gold or platinum plan. You can only get this subsidy if you select a silver plan.
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written by JK, January 14, 2014 11:05
Right, BillB. An acquaintance of mine chose the silver plan for the reasons you stated... and this person has significant health care expenses and, as a cancer survivor, is at above average risk as well. The silver plan is the sweet spot for low income people. The "cost sharing" subsidies seem to be a little publicized feature of the silver plans.

If low income people make up a large percentage of enrollees - as the percentage of silver plans hints at - the program may experience higher subsidy costs than expected. Or should we assume this was accounted for in the cost projections for the program?

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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