February 13, 2014
The persistence of the myth that the future of Obamacare depends on young healthy people signing up shows how reporting on key policy issues can be completely removed from reality. The tiny kernel of truth in the story is that the premium structure is somewhat tilted against young people. An actuarial fare structure (meaning premiums are proportional to costs) would have the oldest age group (55-64) paying about 3.5 times as much as young people on average. However under Obamacare the ratio is just 3 to 1.
However this makes relatively little difference in the overall finances of the program as an analysis by Kaiser Family Foundation showed. Even if the sign-up is hugely skewed toward older people, it would only raise costs by 2.0 percent, hardly the sort of increase that would lead to the widely feared death spiral.
On the other hand if there is a skewing by health conditions, it will matter hugely. To think about this, consider that someone in the older age group will pay an average premium of around $6,000 a year. By comparison, the premium for younger people will be around $2,000. If both are healthy so that they make no claims on their insurers (this will be true of a large percentage of people in both groups, albeit larger among the young), then the healthy 55-64 year-old is worth three times as much as the young invincible.
Anyhow, there has been some good coverage making this point, but somehow Bloomberg still has not gotten the message. Come on folks, look at the numbers and don’t just repeat gossip as news.
Thanks to Aaron Beeman for calling this one to my attention and Robert Salzberg for correcting typos.
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