• Rate shock confusion

    The new Bloomberg View column by Adrianna McIntyre and me should clear up some pervasive confusion about the source of rate shock. Yes, research really does indicate that many people are wrong. Go read it.

    I’d be remiss in not at least pointing out the existence of an AHIP-sponsored report by Milliman actuary James O’Connor. There was not space in the column to discuss it.

    O’Connor’s results appear to contradict those on which we rely in our column. However, the Milliman report does not include details on methodology or underlying assumptions, which are available for the work in the RWJF/Urban Institute document we cite. Maybe O’Connor’s approach is reasonable. Maybe it answers a slightly different question than the RWJF/Urban analysis. (Some aspects of the work suggest this to be the case.) Without more detail, it’s impossible to tell. For this reason, we’re more comfortable with work we can fully evaluate. (Science!)

    Having said that, I am sure some will prefer the Milliman study, even without access to methodological details. If that’s true of you, it’s important that you ask yourself why. It can’t be the (unknown) methods! (Science?)


    • Freedom Works and other groups who oppose Obamacare could have based their campaign on the unfairness of the healthy subsidizing the cost of insurance for the sick but that would not have much appeal since nobody, at whatever age, knows for certain if she will become sick or be injured in an accident tomorrow. Unlike age, which is as predictable as the calendar; if I’m 25 today, it’s highly unlikely I will be 60 tomorrow, but I might be sick tomorrow. The flaw in Obamacare that invites opposition from Freedom Works and other groups is that the decision not to adopt pure community rating is fairly interpreted as an admission that age discrimination is okay since older insureds are more likely to need health care than younger insureds. I saw flaw because an otherwise healthy older insured is much less likely to need health care than a young insured who is sick with a chronic illness such as leukemia; if discrimination in setting the cost of insurance based on the age of the insured is okay, then why not discrimination based on the health of the insured.

    • I’m not sure which parts of the O’Connor paper you consider deficient in methodology. I assume that you were looking primarily at the age curve impact piece, as that’s the normal association for “rate shock”, and reacting to his failure to specify where the “before” age curves came from. Most companies have published rate tables for 2013, and so I did not consider it significant that the particular companies used for the comparison went unnamed.

      I work for a (non-profit) health insurance company, and looking at my company’s age curve before and after ACA, there is a comparable result. For us, any individual subscribers aged 21-39 will see an increase due to the new age curve, any subscriber aged 40 or above will see a decrease due to the new age curve. Children are a mixed bag, most ages get a small increase and either end get big decreases. Drop me a note if you want to see the spreadsheet.

      I did not see in the O’Connor paper that tax subsidies were considered. Given that is not a factor for rate setting, I’m not surprised. From the actuary’s perspective, it doesn’t really matter who pays the premium. On the group side, for instance, I don’t normally think about how much is employer paid versus employee paid.

      I’ll go look at the RWJ report you cite, but I find the claim of 90% eligibility for subsidy (aged 21-27) surprising. That would be good news, if it pans out.

      • @Mark – Estimates are that at least 75% of all people who buy in the marketplace will receive a tax subsidy. Check the data – 400% of FPL includes some relatively high salaries. As for young people, again, check the data – median annual income for 25-34 year olds is about $30,000. Nearly all people in this age group will qualify for credits. I’d be surprised if its as low as 90%.

        • @Sheldon: checking the data.

          I am looking primarily at Oregon data right now, because the OID has published all the approved 2014 premiums for all carriers. The other consideration for subsidy is the second cheapest silver plan. For example, in Portland, that is Moda’s “Be Aligned” plan at $157/month for a 21 year old.

          400% of FPL I’m estimating will be about $47,000 in 2014, which means the subsidy will not kick in, as 9.5% of that income level would be about $370/month. 300% FLP, roughly $35,000 in 2014, can afford $280/month, so again no subsidy. 200% FPL, estimating $24,000/year, has an affordability level of about $125/month, and so will get a subsidy of about $30/month.

          Older ages can “win” under the subsidy as well as the age curve compression. I don’t think it’s as simple as saying “younger people, less money, more subsidy”. I ran the numbers for 21, 30, 40, 50, and 60 years old, at 150%-400% FPL. Premium goes up with age, and thus so do subsidies. 21 year old single person stopped getting a subsidy at 200% FPL. 30 year old single, same. 40 year old got a $1 subsidy at 250% FPL. 50 year old got an $81 subsidy at 250 FPL, nothing above that. 60 year olds get subsidies up to 400% FPL.

          Other markets will be different, of course, depending on the cost of that second lowest silver plan. But that cost is an important variable to keep track of.

    • I agree with Robert that health is a better indicator than age of benefits usage, and that a fully community-rated product inhibits age discrimination.
      3 of my partners and I are working with Milliman on a product we hope to provide for the self-insured market before year end, and the fully-insured market in Texas in 2014.
      It will be fully community-rated, for we believe usage of benefits, and not age, is a better indicator of risk.
      If we take a family of 4, we start with premiums similar to those published in the first paper – around $16,000 a year for a family.
      While the highest premium one will pay is his initial premium, for those who do not file claims (actually paying claims out of pocket rather than submitting covered expenses to the insurer), their community-rated premium drops each month.
      In effect, we are separating family members by risk, based on claims actually filed.
      Thus, even with one memeber who continually files claims, and pays the fully community-rated premiums, over time, the 3 non-claims filers have premiums 60-80% lower than the community–rated premium of the constant claims-filer.
      Overall, the family’s premium is 50-70% lower, $5,000- $8,000 per year – by spreading risk in their particular family unit.
      Don Levit

    • Man, I tried to read the comment thread on the Bloomberg piece but talk about foul…

      Speaking of which, nobody seems to want to point out this:

      The only people who will pay more under Obamacare are those who are young, healthy, relatively high-income Americans. That is, some of the luckiest people on Planet Earth.

      If they can’t bring themselves to pay a little more for the good of all–including their own future selves–then we might as well pack up this country of ours and let it drift out to sea.