Thursday, November 22, 2012

Does the Affordable Care Act "soak the young"?

Avik Roy revives the complaint that formed the emotional core of the legal case against the Affordable Care Act: that the act shafts young adults by forcing them to buy coverage that effectively subsidizes insurance for older adults. Here's the basis of his complaint:
Under free-market conditions—what insurance pros call experience rating—the typical 18-year-old costs one-sixth what it costs to insure the typical 64-year-old.

But Obamacare, in a sop to the AARP, requires that insurers only charge three times as much to their costliest beneficiaries what they charge to their least-costly ones. As the illustration below shows, this increases the cost of insurance for the young by 75 percent, while offering only a modest 13 percent subsidy to older Americans.
Before moving on to the core alleged problem, let's note a couple of sleights of hand at the outset:

1) Roy is comparing the two extremes of the least- and most-expensive age groups (18-24 and 45-64). A more appropriate comparison would be either 21 year-old and a 55 year-old -- or, since adults up to age 26 can now be insured under their parents' plans (and 3 million have taken that option) -- a 30 year-old and a 55 year-old.

2) 75 percent vs. 13 percent sounds ridiculous. But Roy's own chart alleges that what's actually being traded is a $600 hike in the base cost of a plan for the youngest insured for a $600 reduction in the plan for the oldest insured.

Moving on to main point: Roy acknowledges that the increase in base cost for younger insurers will be offset for all but the wealthiest by the subsidies by which the Affordable Care Act makes coverage affordable: no one will pay more than 8 percent of their income for coverage, and many will pay just 2 or 3 percent -- or nothing, under expanded Medicaid eligibility. But he regards the smoothing in retail pricing as wasteful:
Optimists on the left shrug their shoulders and say it’s just fine for younger people to pay more so that older people pay less. But many young people will rightly look at this provision as a raw deal. If you go to the doctor once or twice a year, but are forced to pay $8,000 for your health insurance, why bother? And if young people drop out of the insurance market, older Americans will face higher—not lower—premiums than they would have under an experience-rated system.

What makes this doubly bad, in terms of policy, is that Obamacare spends trillions of dollars subsidizing the cost of insurance for the uninsured. And most people who are uninsured are young. In other words, Obamacare will more than double the cost of health insurance for many young people, and then the law will turn around and spend taxpayer dollars to subsidize the purchase of this newly costly insurance. Only in Washington does this make any sense.
A few points in response:

1. The number of adults under age 35 who are neither insured by their parents nor by their employers yet wealthy enough to be ineligible for ACA subsidies must be quite small.

2. If community rating does make it more expensive to subsidize insurance for younger adults who are not insured by their employers, it correspondingly makes it less expensive to subsidize insurance for older adults.

3. The ACA will enable young adults with preexisting conditions to buy affordable coverage; as of now, they can't.

4. The ACA bans the extremely limited or in fact illusory coverage that many young people were forced to buy before its coverage rules were enacted.

5. The young...age. They will eventually stand to benefit from any relative subsidy that the ACA grants older insureds. Risk-sharing based on age as well as hleath and other factors is essential to any system providing adequate coverage to all.

Roy's underlying premise, again, is that the ACA is forcing hordes of young people to buy expensive coverage they don't need. In the legal challenge to the ACA, that premise was effectively rebutted in an amicus brief submitted by a coalition of 20 youth groups that called itself the Young Invincibles. This brief busted several myths about coverage for young adults in the U.S.  In May, I summarized the facts this brief brought to bear, and they are all germane to Roy's claims:

Young adults are disproportionately uninsured.

In 2010, young adults made up 26% of the population under the age of 65, but account for 45% of that population's uninsured (p. 4)...Only 53% of young adults, ages 19 to 29, have access to employer-sponsored insurance, compared to 76% of adults over the age of 30 (p. 9)...The average annual premium of an individual plan offered to a healthy 27-year old is $1,723...the average young adult with no access to employer-sponsored insurance earns $14,746 per year, making individual plans effectively unattainable (p. 12)..About 19.8 million of the over 70 million young adults between 18 and 34 are uninsured (p. 13)...Millions more remain underinsured, enrolling in barebones coverage that leaves them without access to everyday care (p. 14).
Young adults want health insurance.
When health insurance is affordable and available, young adults enroll at rates similar to older Americans...just 5% actually choose to go uninsured...Instead, the vast majority of young people say they lack insurance because of a lack of affordable options or because they have a pre-existing condition (p. 5). ..when young adults ages 19 to 29 are offered affordable health insurance through employers, 7% enroll, compared to 84% over age thirty (p. 15).
Current behavior proves that the young want health insurance
The uninsured rate is just 14% for young adults living over 400% of the federal poverty level (FPL), but rises to 46% for young adults making less than200% of the FPL...healthy, higher-income young adults are ore likely to have insurance than lower income, often less healthy young adults, completely dispelling unfounded assumptions to the contrary.. .

In 2010, the Department of Health and Human Services estimated that 3.4 million 19 to 25 year-olds were currently uninsured, and had parents who had insurance with the possibility of family coverage...[vastly exceeding expectations,] 2.5 million young adults enrolled on their parents plan in 2011 [when the ACA made that possible] - -a take-up rate of nearly 75% in one year (pp 17-18).
Making coverage available creates economic freedom
Creating affordable individual insurance will also provide young adults, often looking to go back to school, change jobs, make an interstate move, or generally built their careers and their families, with the financial flexibility ad variety of options to switch from the coverage they might currently have (p. 7).
The ACA makes coverage affordable
The Act's tax for failing to maintain minimum coverage will not be assessed against anyone whose family is below the poverty line...Nor will it be assessed against anyone who cannot purchase coverage for less than 8% of his or her income..Also, the ACA provides subsidies...for anyone whose family income is less than 400% of the poverty line; approximately two-thirds of young adults will qualify for subsidies or Medicaid....everyone required to purchase insurance will be able to afford to do so (pp. 7-8).
The young need health insurance, physically...
Young adults have chronic illnesses, catastrophic accidents, unpredictable health crises, and need preventive care....Approximately 15% of young adults live with a chronic health condition such as asthma, diabetes, or cancer...Moreover, almost 16% of young adults ages 18 to 24 have what is classified as a "preexisting condition," and without the ACA are often excluded from the current market altogether (pp. 18-19)...Nearly one-third of uninsured young adults reported their health worsening because they did not access health care soon enough, and almost half of uninsured young adults with a chronic healthy condition reported their condition worsened when they avoided medical treatment due to cost. (p. 25).
 ...and economically
[Young adults'] low incomes lead to serious financial troubles when forced to pay out of pocket. This financial difficulty limits career and educational flexibility for those saddled with expenses or stuck in a less productive job in order to maintain existing coverage (p. 19)...Of those uninsured young adults who sought medical attention, 60% reported difficulty paying for their treatment, compared to just 27% of insured young adults (p. 23)...about half of uninsured young adults incur medical costs...For those young adults with medical debt, the mean debt level is $13,303--higher than any other age group, and credit card debt is 70% higher for those with medical debt -- again, a much higher difference than for any other age (pp. 24-25).
Does the coverage mandate, however, exceed the needs of most young people? Justice Roberts seemed to think so:
CHIEF JUSTICE ROBERTS: Well, but it's critical how you define the market. If I understand the law, the policies that you're requiring people to purchase involve -- must contain provision for maternity and newborn care, pediatric services, and substance use treatment. It seems to me that you cannot say that everybody is going to need substance use treatment -substance use treatment or pediatric services, and yet that is part of what you require them to purchase (oral argument, pp 31-32).
Cf. the Young Invincibles brief:
...young adults need a range of care, from the sudden accidents and unexpected illnesses, to the routine preventive care. Rates of motor vehicle accidents, sexually transmitted diseases, and substance abuse peak in young adulthood...almost half of pregnancies are unplanned, and three-quarters of unplanned pregnancies are from women under the age of 30...Before the Affordable Care Act, only six percent of women purchased coverage through individual insurance markets. These plans have traditionally been able to deny coverage to individuals with a "preexisting condition" such as a pregnancy. Furthermore, plans sold on the individual market often do not cover many important services for women, such as maternity  care (pp. 19-21).
Virtually all reputable healthcare economists and scholars regard community rating as essential  to any national health insurance system operating through private markets.  Portraying community rating as a sop to old people or wasteful government spending is smoke and mirrors.

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