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Impact of Reform Law on Age-Based Premiums

By January 10, 2013Commentary

The health reform law is a hodgepodge of bad ideas cooked up by supposedly smart people.  One of those bad ideas is that insurance premiums shouldn’t vary much depending on people’s health or demographic characteristics.  This is rationalized on the basis of “fairness” but there is nothing fair about not charging people premiums based on their likely use of health care.  It only passes costs from one subset of the population to another subset and it disincents responsible health behavior.  The actuarial firm Oliver Wyman issues an article describing the likely impact of the reform law on premiums for younger Americans.   (Actuary Study)   The effect of the law’s age band compression is exacerbated by the greater benefits required in insurance plans as a result of the law, since many young people today buy bare-bones coverage, if any, due to their low use of health services; but mitigated by the law’s premium subsidies for lower income persons.

The net result of the analysis indicates that young adults aged 21-29 will pay over 40% higher premiums than if the law were not in effect, and adults aged 30-39 will pay over 30% higher premiums.  Even after taking into account the availability of premium subsidies for some of these affected individuals, millions of them will pay very significantly higher costs for health insurance.  There is no question that this will lead to people deciding not to buy the insurance and instead pay the much lower penalty for not buying health insurance, which will undermine the whole rationale for the mandate–decreasing the uninsured–and will weaken the risk pool because healthier individuals will be most likely to decide not to buy insurance.  The level of increased anxiety among proponents of the law as its full implementation approaches is due to issues like this; which will significantly upset much of the population and disrupt their insurance coverage and receipt of medical care.  We haven’t even begun to see the battles over whether this pathetic “reform” law should stay in existence.

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