December 24, 2015
I am going to do a bit of nitpicking on a Paul Krugman post on the Affordable Care Act (ACA). Krugman notes the continued progress of the ACA in reducing the number of uninsured and keeping costs down. Krugman basic points are right, the ACA is working and its opponents are determined to ignore its success.
The basis of the nitpick is that among the positive items, Krugman tells us that “the pool is getting younger.” The problem with this comment is that the age of the enrollees really does not matter much, what matters is their health. It’s true that on average young people have lower health care costs, but they also pay much lower premiums. The ratio of payments for the oldest group (ages 55-64) to the youngest is three to one for an average policy. The ratio of average costs is roughly 3.5 to 1.
This means that it matters somewhat for the ACA if the distribution skews older, but not very much. The Kaiser Family Foundation did the arithmetic a few years ago and found that even an extreme age skewing only raised costs by 2 percent. What matters much more is if there is a skewing by health. The difference in costs within each age group swamp the differences between age groups.
This matters because it is important to get a proper understanding of the progress of the ACA and what matters. I recall a few years ago talking with some twenty somethings who were saying that they didn’t plan to sign up for the exchanges. They were putting it as sort of a threat because they didn’t like the ACA. (They were single payer supporters — so am I.) I encouraged them to sign up because I thought it was good that they had insurance, but explained it was far more important if the 60-year-olds in good health sign up than if they did.
If this sounds strange, think of the premium as a tax that varies by age. There are large numbers of people of all ages with near zero health care expenses, but the older ones pay a tax that is three times as high as the younger ones pay. In this case, it clearly matters much more that we get the older healthy people into the pool than the younger ones.
Anyhow, this is a relatively small point, but people should be clear on what it is at issue. We should kill the “young invincible” myth for good.
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