• About that age compression ratio chart

    Before too many people confuse themselves about the chart I posted last night I feel I should point out two things. First, since the original post, I updated it to take out any hint of the idea that “bros” won’t see higher premiums. The reason is that the chart doesn’t show that to be the case.

    That brings me to the second point. The chart is the answer to the thought experiment in which everyone is in the risk pool. It’s under a guaranteed issue regime. Holding the risk pool constant, the study authors examined what different age compression ratios meant for premium levels by age. The answer: not that much, or at least far less than I’d have thought and probably you too. This is important to know if we’re to consider future modifications to premium regulation under the ACA. Loosening age bands will not, by itself, go very far for most of the population.

    There’s another thought experiment one can consider, and that’s the one that compares ACA-like premiums under a guaranteed issue regime with those that exist today in the individual market (for which guaranteed issue doesn’t uniformly exist, nor modified community rating as the ACA imposes). This is the comparison you may be more familiar with and the one that gives rise to the “rate shock” and “woe to the bros” type discussions. This is an important consideration for start-up of exchange plans and for contemplating the nature of the risk pool enrollees will comprise.

    A key point is that both thought experiments are valid. They address important questions. But they’re different questions and, so, have different answers. Don’t confuse the two.

    UPDATE: Also relevant to the chart is the post by Jill Horwitz and Helen Levy. “The three-to-one ‘age band’ in premiums is the same as the ratio of average medical spending for 45 to 64 year olds to spending for 18 to 24 year olds, according to data from the 2009 Medical Expenditure Panel Survey. […] It is not clear there will be much redistribution from young to old as a result of the ACA at all. There will, within each age group, be pooling of good and bad risks; by definition, this is how insurance works. […] But subsidies from young to old are a red herring.” (H/t Nick Bagley)


    • I think that the broad point that has been in several TIE posts now is that by themselves, bros don’t make or break the ACA. We can have a successful community rating even if bros drop out; getting bros to sign up doesn’t guarantee that there will be enough healthy people to make the risk pool work. It’s about healthy versus unhealthy, not young versus old.

    • Re the chart:

      The chart presented is interesting, but I don’t know what it really represents. Everything will be based upon new risk premium numbers influenced by the law so the old numbers don’t really count. Thus all important is how much risk has to be covered in the high risk population and how much that risk exceeds the 3:1 ratio. If more high risk is attracted then higher and higher premium will have to filter down to the healthier groups (young). Attracting the sickest was one of the reasons the ACA was passed so we should expect their entry into the system if they are uninsured today. If the young/healthy don’t buy insurance then the remaining young will have to have their premiums increased causing a death spiral at least at the level of the youngest and healthiest.

      Additionally I think Blumberg calculated his numbers based upon the subsidies offered. One should be looking at this scenario without the subsidies because they too aren’t as certain as we might believe today. We have to remember other groups get that subsidy as well no matter what their risk so that might be interpreted as inequitable as well.

      We cannot fail to remember that one of the largest groups that have traditionally been uninsured are the young. One doesn’t want to make this worse for long term that will determine the success or failure of universal insurance. (Politicians think in 2-4 year time frames.)

    • The current administration stated they need about 2.8 million young people between the age of 18-30 to sign up inside the exchange. This could end up being a very tall order. The reason they need the young people is so the exchange do not experience adverse selection AKA death spiral.
      Take a 21 year old that is making less than $23K a year. After subsidy they may end up paying $120 a month. So that would be $1,440 year in premium or the go without and pay $94 penalty.

      So I believe there could be the potential of the Exchanges turning into high risk pools by 2016. I hope I am wrong.