The left’s latest complaint about House Republicans’ plan to repeal and replace Obamacare is that it unfairly raises insurance premiums for older Americans.
The GOP’s draft bill, which leaked on February 24, would do away with Obamacare’s community rating rule, which prevents insurers from charging older patients any more than three times what they charge younger ones.
The proposal would boost the age rating ratio to 5:1. That would effectively allow insurers to cut premiums for younger customers and raise them for older ones.
Obamacare was proud to subsidize coverage for the old on the backs of the young. But that scheme is unfair — and has yielded an individual insurance marketplace in the throes of a death spiral.
Older people’s medical claims are, in most cases, much more than triple those of young people. So a 3:1 age ratio effectively guarantees that insurers have to raise baseline premiums for the young. Insurers need to make sure that charging the old three times that baseline will bring in enough revenue to cover their total claims costs.
Obamacare’s backers bet that, even under these unfavorable pricing terms, they could attract enough young, healthy people unlikely to make significant medical claims.
They were wrong. Many of the young and healthy found it cheaper to pay the penalty of the greater of $695 or 2.5 percent of income for flouting the individual mandate and going without coverage than to purchase an expensive individual insurance policy.
Actuaries forecast that 40 percent of exchange customers would have to be young if the online marketplaces were to prove financially sustainable. In 2016, just 28 percent of enrollees were between the ages of 18 and 34.
Without enough young, healthy people to subsidize the claims of older, sicker individuals, insurers suffered massive financial losses, which forced many to pull back from the exchanges.
Last month, Humana announced that it would exit all exchanges by 2018. Aetna has left all but four state exchanges. The company’s CEO, Mark Bertolini, said last month that Obamacare was “in a death spiral.” UnitedHealth plans to sell exchange plans in just a handful of states.
The 5:1 age-rating ratio included in the House GOP’s repeal-and-replace plan would reverse this trend. By reducing premiums for young Americans, the reform would expand enrollment of those under the age of 35 by an estimated 3 million, according to a report by the RAND Corporation.
The new age-rating rule would cause enrollment of older Americans to drop by 700,000, as insurers exercised their newfound freedom to charge them higher premiums.
But it’s important to note that, under Obamacare, these people were likely to see their premiums rise anyway. In 2017 alone, a 60-year old with a bronze exchange plan saw his premiums jump by 21 percent. Average deductibles for an individual bronze plan, meanwhile, broke $6,000 for the first time this year.
With a 5:1 age ratio, premium increases for older Americans would serve to stabilize an insurance market that’s currently collapsing in slow motion. And the “young invincibles” would finally get a good deal on coverage.
Obamacare, on the other hand, just raises prices for everyone.
The 5:1 age ratio isn’t simply a more practical alternative to Obamacare’s rules; it’s also fairer. Americans tend to require more medical care as they age. It’s only reasonable that this trend be reflected in the price of insurance.
Moreover, older Americans tend to be better-off financially than younger people just beginning their professional lives. Over the last quarter-century, the wealth gap between the young and old has grown at an extraordinary rate.
Whereas older families saw their wealth increase by 40 percent between 1989 and 2013, the wealth of younger families dropped by 28 percent during that same period, according to a recent study by the Federal Reserve Bank of St. Louis. That same report finds that older families make up over 70 percent of households in the top half of the nation’s wealth distribution. Younger families make up less than one-quarter.
In other words, Obamacare’s 3:1 age rating ratio shifted insurance costs from a relatively wealthy segment of the population to a young one that was significantly poorer. Far from being unjust, a 5:1 ratio that raises premiums for older Americans may actually restore some measure of fairness to our insurance markets.
Of course, the House’s repeal-and-replace proposal isn’t indifferent to the fact that older Americans will see their premiums rise. It’s for this reason that the plan subsidizes the purchase of individual coverage with a system of refundable tax credits paid to individuals, not insurance companies, that increase in value as patients age.
Individuals under 30 would receive an annual $2,000 tax credit, which they could use to purchase a plan of their choice. The credit goes up by $500 for each 10-year age band, until it reaches $4,000 for people 60 and older. Those who do not spend their entire credit on coverage can put the difference in a Health Savings Account, where he funds can grow tax- free.
To make health coverage affordable for everyone, Americans need an insurance market that distributes costs equitably and gives individuals of all ages a reason to sign up.
Obamacare failed on both counts, thanks in part to its ill-conceived 3:1 age-rating ratio. The GOP’s alternative, 5:1 ratio would rectify this mistake — and finally pull America’s insurance market out of its accelerating death spiral.