Below, a guest-post by Kev Coleman, head of research and data at HealthPocket http://blog.healthpocket.com/ I recently stumbled onto his blog, and now read it regularly. Coleman does an impressive job of crunching the numbers on health care and health care reform—with some surprising results.
Under the Affordable Care Act (ACA) insurers can charge older Americans up to 3 times as much as they would charge a 20-something for exactly the same policy. That might sound steep, but today, in many states, insurers can charge older customers 5 times as much.
Some politicians and industry analysts have predicted that because the ACA limits the ratio to just 3:1 (or 300%) , this will would drive up health insurance premiums for younger enrollees, particularly those in their twenties.
To determine the credibility of that prediction, HealthPocket examined over 20,000 premium quotes within the individual & family insurance market for men and women ages 23, 30, and 63.
We found that in 14 states the average 63-year-old now shells out more than three times what a 23 year old pays. But in six of those states his premium exceeded what a younger customers by less than 310%. In other words, in these states the 63 year old is paying just slightly more than he would under the ACA.
Moreover, the typical 63 year old was not paying 4 times as much as the 23 year old in any of these states. The most expensive state for the average 63-year was Delaware, where his premium would be 382% higher. And Delaware is an outlier. Nationally the difference in premiums between applicants age 63 and applicants age 23 averaged just 260%, making it unlikely that the ACA’s 300% limit on age-adjusted premiums will be a factor that drives younger Americans premiums skiy-high.
However, these averages mask the differences in premiums between men and women. The majority of states allow insurers to offer women and men different premiums even if the women and men share the same age, health status, and smoking status.
[As I have reported in the past, when women buy their own health insurance in the individual market, they must lay out an extra $1 billion a year, simply because they are women. Insurers explain that women cost them more, even if policies don’t cover maternity, because “they are more likely to visit doctors, get regular check-ups, take prescription drugs, and have certain chronic illnesses.” In other words, women are penalized for taking care of themselves. MM]
HealthPocket’s analysis reveals that female health insurance applicants average higher insurance premiums at age 23 than men of the same age. When comparing 30 year-olds to 23 year-olds, 30-year-old women faced an even higher gender-adjusted premium.
But surprisingly, at age 63 this situation reversed. 63 year-old men faced higher age-adjusted premiums When compared to 23 year-olds of the same gender, 63 year-old men paid premiums that were 317% higher while 63 year-old women paid premiums that were 203% higher.
To learn more about what HealthPocket discovered—and its methodology—see HealthPocket’s complete review of the effect of age and gender on health insurance premiums.
Insurers will tell you that women have higher average annual healthcare costs than men until their middle to late 50’s. At age 60 and over, men have higher costs per year. To the extent that women live longer, women probably have higher lifetime costs but it’s annual costs that’s relevant to setting insurance premiums.
If insurers can no longer charge younger women more than men of the same age, average premiums for men will rise for that reason alone. Moreover, the additional benefits ranging from no copayments for preventive care to no ceiling on lifetime claims will raise premiums going forward even compared to reasonably comprehensive coverage. Mini-meds and other bare bones coverage is in a different category and deserves to be abolished, in my opinion, even though lots of lower income young people who see themselves as indestructible like them for the low premiums. The unknowable factor that will affect premiums is the average health status of the population that seeks insurance coverage through the exchanges as opposed to through an employer or outside of an exchange.
As an aside, I will be especially interested to see what happens when supposedly full price transparency comes to the Massachusetts market starting 10/01/2013. This could be a game changer in steering patients toward the most cost-effective providers and could be very helpful in mitigating the growth of both healthcare costs and health insurance premiums.
Barry–
As you have said in the past, the Affordable Care Act will have a significant affect on just two markets:
1) the individual market where indiviudals who don’t have employer-based insurance buy their own coverage and
2) the small business market where small businesses will now be able to buy insurance in “small business exchanges ” (marketplaces where small biz owners will be able to buy insurance for their employees.)
In both cases, individuals and small businesses will automatically become part of “large groups.”
The administative costs of hand-selling and processing insurance for small groups and individuals is very high. This is a major reason why insurers charge small businesses 18% more than they charge corporations–for the same policy.
Under the ACA, then, one migth expect to see much lower premiusm for individuals and small groups as they become part of large groups in the Exchanges
On the other hand, (as you suggest)) the ACA has set high standards for the policies that are sold to individuals and small groups in the Exchanges. They must cover all essential benefits, and must cover preventive care without co-pays. They cannot limit how much they will pay out in a given year, or over the course of a lifetime. They also must cap how much customers are asked to pay out of pocket.
These requirements will make insurance for individuals and small groups more expensive–though, on average, they will be getting a much better value for their dollars.
On average, (according to the Congressional Budet Office) it’s likely that most indiivduals s and small buisneses will find their premiums slightly lower in the Exchanges than they are today–and they will be getting much better protection.
Morever, middle-income and low-income individuals as well as some small businesses will find that insurance costs them much less because they will be receiving subsidies from the government.
(Under the ACA, drugmakers, device makers, hospitals, and insurance compamnies are contributing to pay for these subsidies–which will bring them more customers. Also, under the ACA, individuals earning over $200,000 and couples earning over $250,000 will be paying higher taxes to finance the subsidies.)
‘m not convinced that men will wind up paying more than women. Under the 80/20 (or 85/15) rule insurers will have to prove that the amount they charge for premiums is actually justifed by the amoutn they are spending on healthcare.
I am not at all convinced that what they are now spending on women is, in any way, justified by the much higher premiums that they charge women.
Will paying for contraceptives and Pap smears (required, without co-pays, under the ACA) increase insurers’ costs?
Not likely. The cost of unwanted pregnancies (abortions, and the cost of caring for babies who received too little pre-natal care) is far higher than the cost of contraception. (We have good research on this.) And Pap smears cost relatively little, while Cervical cancer is a very expensive disease (even though, at this point,
only a small group of women fall victim to it.)
Bottom line: the CBO expects that MOST employees of small businesses will find their premiums about 2% lower–
while a smaller group (about 12% ) will find their premiums 11% lower because their employers will qualify for government tax credits.
In the indviidual market, premiums also should be lower because indivdiuals will be part of a group, and higher because they will be getting much better insurance.
How will that work out? By and large, women will see that their premiums are lower (no more gender-based premium rating) and people suffering from pre-existing conditions will see lower premiums.
Some people say that younger Americans will see higher premiums, but Kev Colemans exc. reserach suggests that isn’t true.
As you know, much will depend on the mix of people who join the individual Exchanges. If many young Americans who are now not insured join these pools they will, as you know, bring down the cost of premiums.
There are a lot of “if’s” surrounding the affordability question. I’ll be curious to see how many “healthy” individuals will tolerate the 21-page application that is sent to the Dept. of Homeland Security first and then to the I.R.S.
And, with small employers, who will have to pay their premium 90-days in advance followed by their premiums being paid by automatic bank-draft.
And one so-called protection on the Exchange will offer a 90-day grace period for premiums to be paid may not be too popular with healthcare providers who may find themselves in the collection business should someone really lapse their policy.
Or, the fact that smokers will be charged 50% more in premium but it will not be included in the tax-credit will affect predominently the poor. Of course, there is nothing in the ACA concerning testing for this so I guess come January 1st 2014 we’ll become a nation of non-smokers!! 🙂
Henry–
First, it’s up to the states as to whether smokers are charged more–and how much more (if at all). Secondly, most adult smokers are poor and under the Affordable Care Act, the vast majority will be on Medicaid. If you’re on Medicaid, there are no premiums, and so no penalty for smoking.
Moreover, in a great many states Medicaid offers free smoking cessation programs, which include free nicotine pathces and medication to help an individual stop smoing. Since the ACA expands Medicaid, these programs will be available to many more people.
Finally, if you get your insurance through your employer, you will not be charged the penalty, but you may be asked to join a smoking cessation program.
Your first statement–which suggests that everyone will have to fill out a 21-page application to join the Exchanges is simply nonsense.
Individuals will have a 90-day grace period for late payment of premiums, but today they have a grace period of at least 30 days (sometimes longer–varies according to state law).
If they go past the grace period, they have to apply to be reinstated , and pay the late premiums, but most insurers will accept the late premiums as long as they are not more than 90 days late.
So the rules under the ACA will not be very different from the current rules. Providers will not suddenly find themselves in the collection business.
I would like to see the section of the Affordable Care Act that says small businesses must pre-pay premiums!
In the future, please do not try to use this blog as a vehicle to spread misinformation. If you do, your comment will be blocked.