Government Accountability Office Confirms Health Insurance Rating Rules Hike Premiums for Young People
In an under-reported brief published last week, the Government Accountability Office confirmed that states which prevent accurate underwriting of health-insurance premiums by age impose higher premiums on young people. There has been no shortage of actuarial analysis of ObamaCare’s coming “rate shock” for young adults, but the GAO has used data from the U.S. Department of Health & Human Services’ own website. This is the department which tells us ceaselessly how beneficial ObamaCare is for young people.
For a thirty-year old, non-smoking male, monthly premiums in the three most expensive states are: $2,564 (Massachusetts), $2,232 (New Jersey), and $1,986 (New York). For the same man, premiums in the three least expensive states are: $349 (Nebraska) and $363 (Georgia and Texas).
The difference is not driven solely by forbidding insurers from charging actuarially accurate premiums to young people. The $349 policy in Nebraska has a deductible of $5,000 and that plan’s maximum out-of-pocket cap is $10,000. So while a policy-holder might have an unlucky accident that puts a serious dent in his bank account, he’s not going to go bankrupt with no hope of recovery.
An average 30-year old is unlikely to pay the extra $2,215 monthly ($26,580 per year) to get the extra “protection” of the Massachusetts policy, given the choice. And yet this is the direction in which ObamaCare drives us. New York forces insurers to charge the same premium to all adults. Slightly more “liberal,” Massachusetts and New Jersey allow insurers to blend age with other factors such that the most expensive premiums can be double the lowest (2:1 rating).
ObamaCare imposes 3:1 age rating rules nationwide. But actuarial consensus is that the average 62-year old incurs five times the medical costs of the average 22-year old. It is not possible to insure against aging. If we live forty years past our 22nd birthday, the likelihood of our turning 62 is one hundred percent. So, forcing insurers to charge the same premium to people of different ages does not reduce any individual policyholder’s risk ― which is the purpose of insurance.
In no way is this “just” or “fair.” It artificially makes health insurance too expensive for young people to afford without subsidy. When coupled with an individual mandate to purchase insurance, this necessarily imposes a burden of excess taxation on society, because high taxes are necessary to fund the subsidies.
This might explain why politicians impose it upon society: It increases their power to tax and transfer income.
“This might explain why politicians impose it upon society: It increases their power to tax and transfer income.”
I’m glad he said this. It’s about power, not health care. Nobody who is paying attention can possibly think ObamaCare helps people.
“forcing insurers to charge the same premium to people of different ages does not reduce any individual policyholder’s risk”
Is that really a 10x or 1000% difference between the highest and lowest states???!!!?
It’s a 7.3x disparity between highest and lowest. But, yeah it is a lot.
The age rating rules are just the same as with all entitlements… the youth keep paying for the elderly. As of right now, the baby boomers spent us into a dark hole and the generations after the baby boomers are paying for it and their retirement at the same time! Generations after the baby boomers are in big trouble, starting off really weakened. The youth will not be able to build the great amounts of wealth as easily as their parents or grandparents.
Baby boomers, entitlements, Obama reckless spending will be the end of everything!
Exactly, the question is: Big crash or gradual decay?
How about pretty-big crashes as mile markers on the road of gradual decay?
It is just not fair to burden the youth and young starting/growing families like this.
Don’t worry, we’ll just kick it on down the line.
Nobody is being charged “actuarially accurate premiums.” I wonder how long will that be sustainable?
And as an over-50 individual plan buyer, my rates will go up significantly (60-82%), not so much because of my age, but because I can no longer purchase a low-premium, high-deductible catastrophic plan.
John, I have appreciated you past writing, especially where you explain the similarities between the ACA’s individual mandate and the tax bias in favor of employer-sponsored health insurance.
But using the three states with the worst case of runaway adverse selection and overregulation seems to exaggerate you current point. Wouldn’t a fairer comparison be between actuarially-accurate plans on the one hand, and employer sponsored coverage on the other?
Employer plans are community-rated by law. Small business plans are age-banded as you describe, and large company plans are not age-adjusted at all. These seem to qualify as having the same lack of accurate underwriting. But taken together they are a much larger sample (at 65 percent of the working population) than the three states you mention, whose plans are effectively nothing more than risk-pool coverage.
John, I have appreciated your past writing, especially where you explain the similarities between the ACA’s individual mandate and the tax bias in favor of employer-sponsored health insurance.
But using the three states with the worst case of runaway adverse selection and overregulation seems to exaggerate your current point. Wouldn’t a fairer comparison be between actuarially-accurate plans on the one hand, and employer sponsored coverage on the other?
Employer plans are community-rated by law. Small business plans are age-banded as you describe, and large company plans are not age-adjusted at all. These seem to qualify as having the same lack of accurate underwriting. But taken together they are a much larger sample (at 65 percent of the working population) than the three states you mention, whose plans are effectively nothing more than risk-pool coverage.
Bart, thanks for your comment. I appreciate your point about employer-based group coverage – especially as it still dominates private coverage.
However, it is a little different. First, underwriting for age is ok in many states. (In California, they have 5-year age bands.)
In Maryland or DC, for example, there is no age rating in the group market.
(Important economic point follows below.)
However: the law can community rate (or modified community rate) group coverage but that does not really result in community rating. This is because the health benefits are bundled into total compensation. So, the community rating is “undone” via money wages.
That is, an employer or group insurer in Maryland or DC, for example, cannot charge different rates for different ages. However, he will find that the young people tend not to take up coverage. (If the carrier and state law require that, say, 75% of lives be covered, it will be the young who dominate the non-enrolees.) The employer knows this so will increase their money wages in order to induce them to sign up. The older people will accept lower money wages because they really value the coverage.