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Obamacare Exchange Enrollment Skews Much Older Than U.S. Population

January 13, 2014

By Avik Roy

It’s been the top concern since the Obamacare bill was written. Would healthier and younger people sign up for Obamacare-based insurance, despite the fact that the law forces those individuals to pay far more for health insurance than they otherwise need? If healthy people stay away, the cost of health insurance under Obamacare will increase over time, risking what actuaries call an “adverse selection death spiral.” Finally the Obama administration has begun to release the data, and it’s not good. We may not get as far as a true “death spiral,” but for tens of millions of Americans, the law’s promise of affordable health insurance is unlikely to materialize.

Exchanges skew 22-27 percent older than uninsured population

Here are the key figures. 59 percent of non-elderly adults who selected an exchange plan were older than 45, compared to just 32 percent of the uninsured population: a skew of 27 percent. On the other hand, 25 percent of non-elderly adults who selected an exchange plan were younger than 35, compared to 47 percent of the uninsured: a skew of 22 percent, for a total skew of 49 percent (27 plus 22).

The states with the biggest skews toward older exchange participants were West Virginia (total skew: 66 percent), Maine (65 percent), Wisconsin (64 percent), New Mexico (61 percent), and Ohio (60 percent). The states with the lowest skews were Massachusetts (28), Utah (29), Kentucky (39), Maryland (39), and Virginia (40).

The variation amongst states is not solely due to Obamacare; different states’ underlying uninsured populations skew older or younger. The District of Columbia was an outlier with a skew of 2 percent toward younger participants; this is because a significant proportion of the 3,043 District residents who “selected a marketplace plan” were young Congressional staffers.

A ‘worst-case scenario’ that could cause insurer losses

As Philip Klein notes, a recent article by Larry Levitt, Gary Claxton, and Anthony Damico of the Kaiser Family Foundation described an enrollment of 25 percent among 18-34 year olds as a “worst-case scenario,” estimating that insurers would lose money on these plans, because “overall costs…would be about 2.4% higher than premium revenues.”

2.4 percent may seem like a small number, but given that the average insurer has profit margins of 4 to 6 percent, a 2.4 percent loss on premiums—before we even count overhead costs—is a serious problem. It’s why Humana reported to the Securities and Exchange Commission that it expected meaningful losses in its exchange-based plans.

Will adverse selection get better or worse over time?

There’s reason to believe that things will get slightly better with time. The people who needed coverage right away—and were bound to sign up right away—were those most in need of someone to pay for their immediate health-care needs. But law was designed from the beginning to increase the cost of coverage for healthier and younger people, in order to make coverage a better deal for the sick.

The national skew, now 49 percent, may come down to 35 or 40 percent, by the time we get to the end of the open enrollment period in March. But the bottom line is that insurers will still lose money on these plans. And there are other aspects of adverse selection. For example: are we seeing sicker participants within a given age group, regardless of age? Are the healthy people in the exchanges skewing towards high-deductible bronze plans, while sicker people buy more generous silver and gold plans?

Taxpayers will be on the hook for any increased costs. Most importantly, many Americans will choose to go without insurance because it’s even less affordable than it was before.

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