Photo Credit Thinkprogress.org
Young people love President Obama. But will they love Obamacare?
The real test will come this October, when millions of uninsured people will be required to enroll in health insurance through health exchanges run by their state or the federal government. The new exchanges will be a godsend for uninsured people with serious health problems. Insurers will have to issue them policies and cover their pre-existing medical conditions and will be prohibited from charging them higher premiums based on their medical condition or family histories.
But what’s good for people who genuinely need medical coverage is bad for the exchanges. That’s because the premiums unhealthy people will pay won’t nearly cover the cost of the care they’ll consume. To succeed, the exchanges need to attract healthy people, who will pay premiums but only rarely see a doctor.
Those people tend to be young. And there are millions of them – an estimated 18.5 million uninsured people are between the ages of 18 and 34, according to the most recent government data. Nearly 2 uninsured people out of 5 is in this age bracket. They are almost twice as likely to be uninsured as the general population. Most importantly for the exchanges, this group, as a whole, is exceptionally healthy. Getting them to enroll in health insurance and pay premiums for coverage they’ll rarely use is the best way to make the new exchanges work efficiently.
So why does the health law make it so hard to enroll 18–34 year-olds in the exchange?
The first is political. Although the President signed the health law more than three years ago, none of its major provisions has been implemented. There have been positive changes. Insurers no longer can impose annual or lifetime limits on coverage or drop people’s insurance on obscure technicalities. Few have noticed these changes because few have benefited from them. The law’s high risk pools, designed to allow people with serious medical conditions to obtain affordable coverage prior to the creation of exchanges in 2014, have been an epic fail, insuring only a fraction of eligible people at exorbitant costs. Alaska, for example, spent $13 million insuring just 45 people. (Yes, you read that right.)
The one high-profile success was the requirement that employers and insurance plans allow young people to stay on their parents’ policies until they turn 26. So eager was the Administration to provide something tangible to this large swath of young people that the requirement extends, not only to kids who no longer live with their parents, but also to those who are married.
But the political advantage that derives from this provision will soon become a practical liability for the exchanges. The Census Bureau estimated that nearly 8.3 million people aged 18–25 lack health insurance. With the exception of undocumented aliens, they will be required to obtain health coverage or pay the new tax on the uninsured beginning in 2014. Instead of enrolling in coverage through the exchange, they will be able to stay on their parents’ policies. So a big cohort of young, healthy people won’t buy coverage through the exchange.
There’s a second group of healthy, young people who will be staying out of exchanges: those who qualify for Medicaid. Beginning next year, the federal government will pay 100 percent of the costs of enrolling people with incomes below 138 percent of the federal poverty level ($15,856) in Medicaid. States with some of the largest Medicaid populations in the country, like New York and California, have jumped at this offer, although others have refused.
Since this group tends to consume few medical services, why did the authors of the health law not choose to subsidize their coverage through exchanges, where they would help offset the costs of older and sicker enrollees? The reason is pretty simple: it’s a lot cheaper to enroll people in Medicaid than in private insurance. That’s largely because Medicaid pays doctors and hospitals so little to provide care – so little, in fact, that many doctors refuse to see Medicaid patients. An estimated 42 percent of internal medicine practitioners, for example, fall into this group. People on Medicaid, not surprisingly, have trouble finding doctors and dentists to provide their routine care. Adding 7 million more people to the program next year will only make this worse. Covering those people in private plans with robust physician networks would cost the government far more than herding them into an HMO run by a low-bid government contractor. So to keep the costs of the new health care law contained, the decision was made to put millions of young and healthy people into Medicaid. The problem is that this keeps those same young and healthy people out of the exchange.
Those young people who do seek to avoid the new tax penalty for remaining uninsured by signing up for insurance coverage through the exchange will get a rather unpleasant surprise: the premiums will be unfairly high. Those rates will be high for everyone, about 32 percent higher, on average, than premiums that currently are charged in the individual market, according to a recent study by the Society of Actuaries. But they will be especially unfair to young enrollees because they will be high relative to the risks that they will consume medical care.
Insurance is about pricing risk. That’s why your auto insurer tracks your driving record, your issuer of homeowners insurance wants to know what your house is worth and when it was built, and why your life or disability insurer usually wants to take blood tests before issuing you a policy. An insurer who is accepting the risk of your having an accident, your house burning down or your dying during the term of your policy wants to be able to accurately estimate these risks and set premiums accordingly.
Under the new health law, health insurers will be forbidden to collect data to calculate your risk. They will, however, be able to charge higher premiums to people who admit that they smoke and they will be able to vary premiums by age. Up to a point. Age is a rough proxy for health status. There are 22-year-olds with chronic medical conditions and 64-year-old triathletes. But as a whole, actuaries estimate that the expected medical claims of a 64-year-old male are more than 6 times as costly as those of a 22-year-old.
So the health law allows the insurer to charge the 64-year-old more than 6 times as much as the younger person, right? Wrong. It prohibits insurers from charging older people more than 3 times as much as it charges younger people. To adhere to that 3:1 ratio, the insurance company has to reduce the premiums it charges older people and increase the premiums it charges younger people. Using that same Academy of Actuaries study, I calculate that it will have to give our 64-year-old a discount of around 44 percent from the actuarially fair premium, while marking up the premium for our 22-year-old by 41 percent. That hardly seems fair. Nor does it seem a great strategy for achieving the government’s goal of luring young people into buying insurance that they don’t think they’ll need.
The law’s advocates note that the government will subsidize those premiums for many individuals. A person who earns $34,470, for example, will pay no more than $3,274 a year for health coverage, or 9.5 percent of their income. But, of course, an older worker at that income level would pay the same amount for coverage, despite the fact that he will, on average, run up medical bills that will be more than 6 times as great as our 22-year-old. Besides, why the clunky approach that marks up premiums for young people then gives those who earn less than $46,000 a subsidy? Why not just charge fair rates in the first place and then subsidize those whom the government believes can’t afford them?
One reason is ideology. Many Democrats who voted for the law disdained its hybrid approach that shackles private health insurers but allows them to survive, preferring a government-run single payer system financed by new taxes, rather than by premiums. The new law grants government enormous new control over that market, but doesn’t go far enough, in their view. Rep. Jan Schakowsky (D‑IL) spoke for many in her party when she said that the she would vote for the law as part of a “strategy” to move to a single payer system.
Whether this strategy will succeed – whether the law itself will succeed – is anyone’s guess. But it helps explain some of its anomalies, like why it overcharges young people for coverage. Many, perhaps most, Democrats are uncomfortable with the concept of insurance, at least as it pertains to health care. They think it’s wrong to charge higher premiums to sicker people based on their higher risk. They believe that government can allocate medical goods and services more efficiently and more fairly than can markets and aren’t terribly fond of private health insurers. But they judged that an immediate move to a system run entirely by the government was a bridge too far. So they contrived a law that makes our complicated and confusing health system a little more complicated and confusing.
Americans remain divided over the health law because, although they don’t like insurers, they also don’t like giving the government so much control over something that matters so deeply to them. True believers of both parties have already formed their judgments about the new law. Many Americans will take a more pragmatic approach. If they don’t see big changes in their employer-sponsored coverage and if they hear stories of less fortunate people finding coverage, they may warm to the law. If the health insurance exchanges misfire and young people balk at enrolling, they may view it as a mistake.
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