The Kaiser Family Foundation attempts to tamp down the concerns about a “death spiral”, an unsustainable because self-reinforcing collapse in the individual insurance market, induced by too few young people enrolling for insurance:
Insurers typically set their premiums to achieve a 3-4% profit margin, so a shortfall due to skewed enrollment by age could reduce the profit margin of insurers substantially in 2014. But, even in the worst case, insurers would still be expected to earn profits, and would then likely raise premiums in 2015 to make up the shortfall, However, a one to two percent premium increase would be well below the level that would trigger a “death spiral,†which would occur if insurers needed to increase premiums substantially, in turn further discouraging young and healthy people from enrolling.
From the perspective of keeping insurance premiums stable, how enrollment is distributed by health within each age group is, in fact, more important, since premiums cannot vary at all by health status under the ACA. In other words, the goal is to enroll healthy as well as sick young adults, and also healthy older adults. (Older adults are more likely to be sick than younger people, but that is mostly accounted for by the fact that premiums can vary by age.)
This is, of course, true but “young” is a fair first order approximation shorthand for “young and healthy”. For example, the percentage of people over 60 with congestive heart failure is more than double the percentage among people who are between 40 and 59. I presume the percentage is even smaller among those under 40.
The basic question is the risk profile of those signing up for plans in the individual insurance market. I wonder what the shortfall would be if most of those who sign up are sick regardless of how old they are.
There are a number of things glossed over in the KFF’s article, for example, that insurance companies need reserves so they can pay the bills as well as profits so if there’s a shortfall this year they’ll need to make it up and then some next year. And costs are bound to rise for reasons other than the risk profile. Is there some level of cost increase beyond which the “death spiral” is inevitable?
Ah, well, I guess every article can’t be about everything.
Generally, its going to be a better deal for the young to stay on their parent’s plan (required through age 26, but can be up to age 30). I’m seeing estimates of 67% of adults ages 19 to 29 were enrolled in their parent’s plan in 2013. So, the question is how many of the parent’s plans are going to be through the individual market, I would guess few. Also, how many of the remaining adults are going to be eligible for expanded Medicaid?
This may be an instance where the goal of reducing the ranks of the uninsured through a variety of mechanisms worked against the health of the exchanges.
My number is wrong, and the link doesn’t provide the number I was looking for. It does indicate that 36 of adults age 19 to 29 turned down employer’s coverage to go on parent’s plan in 2013.
*36 percent
What about the so-called risk adjustment mechanism tucked into Obamacare, currently known as “risk corridors,” where the government will compensate insurance companies not making enough profit, for three years — from taxpayer monies, of course?
The wheeling and dealing, done between the govenment and insurance companies, is mind-boggling! It reminds me of the Goverment’s other behind-closed-doors relationships with such agencies as the NSA, IRS, DOJ etc. Transparent? Yeah, right!