Don't worry, I'm not advocating mass murder; I want to put to death a silly myth about Obamacare that keeps getting spread by people who should know better. The basic story is that Obamacare is dependent on getting large numbers of young and healthy people into the system. The premiums these people pay will help to cover the costs incurred by older and less healthy people.

The latest repetition of this myth appears in a NYT editorial urging Republicans not to destroy the Affordable Care Act (ACA). The piece notes the sharp increases in premiums last year and then told readers:

"Still, the cost of insurance, deductibles and co-payments is too high for many people, especially middle-class families that earn too much to qualify for subsidies. But the solution is not to take away the benefits of the law but to strengthen it. Costs could be lowered if more young and healthy people were encouraged to sign up to spread costs over a larger pool of people."

This comment wrongly implies that the problem of the system is that not enough young people have signed up. This is not true, the age distribution of enrollees has little impact on the cost of the program. While the distribution of premiums works slightly against the young, it is not enough to have a substantial impact on the finances of the system.

The Kaiser Family Foundation showed that even an extreme age skewing of enrollees would raise costs by less than 2.0 percent. It matters much more whether there is a skewing based on health conditions.

To see this point, think of the premium people pay as a tax. Under the ACA, people in the oldest age bracket (ages 55 to 64) pay premiums that are three times as large as people in the youngest age bracket (ages 18 to 34). This means that each older person pays three times as much into the system as a younger enrollee. This would mean, other things equal, we should value getting an older enrollee into the exchanges three times as much as a younger enrollee.


Of course this calculation does not take account of their health care expenses. On average, the older enrolllees will cost the system about 3.5 times as much as young enrollees, which means that on average the older enrollees are a net drain on the system. However, a large number of people in the older age band are every bit as healthy as people in the youngest age band. These people impose little cost on the system, just as is the case with healthy young people. It matters hugely for the finances of the system if these older healthy people end up in the exchanges.

It turns out that this is exactly the problem faced by the exchanges. Contrary to what is often repeated, health care insurance coverage is actually running ahead of projections. This means that the problem cannot be that too many people have opted to go without insurance. Rather the problem has been that too many less healthy people are ending up in the exchanges and they are not being offset by the savings with more healthy enrollees.

The reason the healthy enrollees are not showing up on the exchanges is that fewer employers dropped insurance than had been projected. People who get insurance through an employer tend to be more healthy than the population as whole for the obvious reason that they are healthy enough to be working at a full-time job.

It is perhaps ironic that the biggest problem faced by the ACA is that it was less disruptive to the health care insurance system than expected. But this is the reality that we must face, it is not an issue of "young invincibles" not buying insurance.

 

Thanks to Robert Salzberg for calling this editorial to my attention.