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)

@afrakt

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