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Home Publications Blogs Beat the Press The Health Care Exchanges Need Healthy People, It Doesn't Matter If They Are Young, #65,412

The Health Care Exchanges Need Healthy People, It Doesn't Matter If They Are Young, #65,412

Thursday, 20 March 2014 03:57

How can we stop the country's leading newspaper from repeating nonsense? To paraphrase a former president, "there they go again." A front page article on the Obama administration's efforts to sign up young people before the deadline told readers:

"And there is concern that the administration still needs a larger proportion of 18- to 34-year-olds, the young and presumably healthy people whom insurance companies need as customers in order to keep premiums reasonable for everyone."

The simple fact, as shown in this analysis by the Kaiser family Foundation, is that the potential age skewing of enrollment matters little for the cost of the program. Younger people are on average healthier than older people, but they also pay much less in premiums. The difference in premiums doesn't fully capture the difference in costs, but the gap between premiums and average cost has relatively little impact on the finances of the program. It matters much more if there is a skewing by health condition.

Most older people are also healthy. A substantial portion of people in the oldest age bracket (55-64) will have few or no claims on their insurer. Since these healthy older people pay three times as much on average for insurance as young people it matters much more whether they sign up for the exchanges than healthy young people. 

Comments (10)Add Comment
The Death Spiral Already Happened With Pre-Obamacare
written by Last Mover, March 20, 2014 6:31

Two reasons for the nonsense. One is a small number of people account for a high percentage of health care cost at all ages in terms of expenditure. The other is the Obamacare framework is a precursor to single payer.

Sock puppets of economic predators who run the medical industrial complex have been trained from day one to attack anything that looks remotely like single payer.

The notion that health care costs as insurance can be spread across a larger base must be hoisted daily up the media fearmonger flagpole to highlight claimed forced subsidies from the young to the old, rather than real differences in health care cost outcomes between the healthy and non-healthy at all ages.

If instead the media highlighted that health insurance from the private sector has already proven to be a massive market failure by definition, resulting in grossly overpriced useless bill collectors designed to reimburse health care providers for their own gross overpricing ... the sock puppets would be forced to admit the very death spiral they keep hoping happens under Obamacare ... has already happened pre-Obamacare.

Pre-Obamacare they say, had no "subsidies" because everyone "paid their way". The Catch-22 was when the few who needed a lot of health care got it, they ended up paying far more than the true economic cost (read "minimum efficient cost per capita") of providing that care, or were denied the insurance they thought they had through legalized insurance fraud, or taxpayers paid for it.

That also left many who got no health care at all for lack of the required gateway "insurance" to get it, effectively the end result of a death spiral caused by private market failure because prices were too high and people would not or could not sign up ... like the young today under Obamacare.

Bottom line: Health care risks cannot be allocated efficiently by private insurance markets and health care provider costs cannot be incurred efficently by producers of health care. That means asserted "subsidies" among end users of health care pale in light of these failures.

It's time to admit that single payer was never designed to allocate risk among users of health care like young versus old. Its efficiency to achieve far lower cost is so powerful compared to private market failure, it's like the interstate highway system - just build it and allow everyone access for taxes paid.

Stop trying to carve it up with a myriad of highly discriminatory extortionist fees to some and deny it altogether for others because it "costs" three times what it should anyway.
Higher Premiums
written by Ellis, March 20, 2014 10:49
Premiums are heading much higher next year, doubling and tripling in some instances. Here's the report:

written by Larry Signor, March 20, 2014 12:53
Um, my children were on my healthcare plan until they turned 26. This situation is not available to everyone, but it has to consume some of the 18-34 yr. old market. The opposition to the ACA is targeting strawmen with their arguments concerning the implementation of the ACA. The macro impact is the point of the ACA, not some fuzzy intermediate data point.
Dis-ease Disease #65,412
written by John Parks, March 20, 2014 1:56
After 65,412 continued misrepresentations maybe we can accept the possibility that educating the public is not the purpose of these articles. The authors are not complete idiots and in many cases are fully aware of the critiques leveled against their essays/opinions/propaganda and they will continue to write the same drivel. Since this seems to be the case, then we can perhaps accept the possibility that simply spreading dis-ease is ultimate goal. Keeping this flag flying in an election year will have more impact than if the flag was simply struck and hauled down.
written by OM, March 20, 2014 2:55
I'm not getting you're argument here - young people signing up won't impact the "cost" of the program? Ok, the ACA has built in protectiosn for the "cost" of the program, but that's not exactly what many of those people shouting "young people need to sign up" are talkign about. They're concerned with sustainability. If enough young people don't sign up at or around percentages that reflect general population, then prices will rise next year. It's pretty simple and any insurance actuary would tell you same. So I'm not really sure what you're saying. AND, this linked report says that in pretty clear terms! "For this system to work, young people need to enroll in sufficient numbers to produce a surplus in premium revenues that can be used to cross-subsidize the deficit created by the enrollment of older people" Now the cost of the program is protected by the 3 R's, but the assurance of plan participation is certainly not. And if you get a small percentage of those young and healthy's signing up, then many of the smaller plans will pull out and many of those ACA co-ops will lose lots of money. That's a fact. Also, two things that really irked me - not all older people pay, on average 3 times as much for insurance. These plans are community rated and the the rates are much closer in many regions. The limit can reach 3/1, but that's not the average and certainly you should recognize this. Also, of course most old people are healthy. Doesn't that go without saying? Anyone who knows anything about healthcare would tell you that 5% account for 60% of costs, so how could you assume that most people are sick? Who is making that argument? You always bring great analysis but I have to say I'm disappointed by this.
written by S. Ken Brown, March 20, 2014 5:03
Considering there are 3 sources of wealth; resources, labor and games, insurance is the consumate game. Sure, we had something previously that sort of facilitated paying health care bills, imagine if every road had toll keepers trying to charge variable rates depending on arbitrary nonsensical pronouncements but with the force of law, versus the way highways work today. i.e. pull out and go and toll roads are well known with plenty of notice and the opportunity to use them or not. By way of my contribution to solving the problems of the world, humans need to be tasked to solve much bigger problems and not be consumed wondering if they can get a cut stitched up or chest pains diagnosed without a bill for a thousand bucks. So a pox on the insurance industry and kudos to Barry for taking on the status quo. illegitimus carborundum.
effects of undersigning by youth is 2%, max
written by Squeezed Turnip, March 20, 2014 5:42
Okay, let's get unconfused here …

written by OM, March 20, 2014 2:55 …
They're concerned with sustainability. If enough young people don't sign up at or around percentages that reflect general population, then prices will rise next year

OM, if you read farther down into that same report (which Ellis should also read), it says:

However, because premiums are still allowed to vary substantially based on age, the financial consequences of lower enrollment among young adults are not as great as conventional wisdom might suggest.

… Achieving a balanced risk pool in the individual insurance market will help to make it an attractive market for insurers and keep premiums down over time. Conversely, enrollment of a disproportionate share of older and sicker people will tend to drive premiums up. However, premiums are not as sensitive to the mix of enrollment as fears about a “death spiral” suggest, particularly with respect to age. It is important to attract the “young invincibles,” but maybe with a greater focus on the “invincible” part.

They run two scenarios. Even if 50% of the lowest age group don't sign up, premiums should increase only about 1-2%, which is hardly 'skyrocketing'.

By the way, Ellis, you should beware of blogposts that use the word 'skyrocketing' and opinions of anonymous insurance executives that are based on their gut feeling. Making prognostications of future rate changes by the activity of the bacteria in one's large and small intestine is what counts as executive leadership in the health insurance industry? I hope mr. gut-reader consults with the actuaries before making a gut-wrenching mistake.
Young entrants
written by TScott, March 20, 2014 9:31
I think I'd at a glance support what OM said. I'd agree that the media are exaggerating the point but if young people cost a significant amount less on average on health care and at the same time they are the largest group that is uninsured, wouldn't it make sense to target them to sign up.

Many products have customers which cut across demographic lines but the best marketers know where to concentrate their push. I think it's smart for the push to be towards the group with the highest profit margin and largest population pool.
Skewing by health and age are different
written by Dean, March 21, 2014 1:36

Three to one actually is pretty close to the difference in average costs between the older and younger group (it's around 3.5), so the skewing by age matters little. The young cost less, but they pay less as well. If you're raising the issue of skewing by health conditions, of course that can be a problem. But no one has presented any evidence that age skewing and within age health skewing are correlated. That may prove to be the case, but this is not what either this article or any of the thousands that preceded it claim.
written by OM, March 21, 2014 10:15
thanks for your resposne Dean, and the argument makes more sense now. I did some research and you're right about the 3 to 1 average, so I'm sorry for the misguided response. And I agree with your assertion - health will be the ultimate determinant not age. It's an interesting issue and I also agree with you and most of your commenters - I've heard far too much about the young invincibles not signing up and the imminent death spiral. there are definitley more accurate and important issues to be discussed and our time would be better spent reading articles that explored those nuances (if only journalists would write them.)

I guess I would argue that the concern for young entrants is important not because of costs but access similar to TScott. If we can't get the young invincbles to sign up then it will be difficult to tackle the high rates of uninsured. And i have to admit i'm still skeptical of plan participation if the young invicibles don't sign up. Even if plans are reimbursed through the three R's it's difficult for me to envision them actively pursuing this new market, especially when you consider the rise of the private exchanges. I realize this is a separate matter from the original post but soemthing i think should be discussed when dealing with this issue. And it touches on my original point - young invincibles will need to sign up in order for the public exhcange to have long-run sustainability. looking forward to this discussion to continue.

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About Beat the Press

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.