The Real Health Care ‘War’ on the Young

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The Real Health Care ‘War’ on the Young

By UWE E. REINHARDT

January 17, 2014

Uwe E. Reinhardt is an economics professor at Princeton. He has some financial interests in the health care field.

A common theme among critics of Obamacare has been that it basically is a war on the young and especially on men.

“Why aren’t Millennials marching in the street over Obamacare?” asks Chris Conover, a policy analyst at Duke University, in Forbes. “Anyone with a conscience should be offended by the greatest generational theft ever witnessed in the history of the world. Young Americans – especially the Millennial generation born between 1977 and 1995 – are the biggest losers in this battle, but it will adversely affect their children and grandchildren to boot.”

The most seriously victimized by Obamacare, its critics say, are men. Possibly inspired by John Goodman’s column “Obama’s War on Men” on the National Center for Policy Analysis health care blog, Avik Roy, a Forbes columnist and Manhattan Institute senior fellow, metaphorically described Obamacare in aFox News interview as a “war on the bros.”

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The destructive weapon supposedly wreaking this havoc on the young and the “bros” is the “adjusted community rating” that the Affordable Care Act imposes on the market for health insurance policies sold to individuals or small groups (mainly the employees of small businesses). Although the act allows insurers to vary their premiums by age up to a ratio of 3 to 1 and to charge smokers 50 percent more than nonsmokers within an age group – hence the term “adjusted” community rating — premiums may no longer be based on the health status of individuals within age bands nor on their gender.

Now, one certainly can have misgivings over community rating on actuarial grounds. From the perspective of commercial health insurance, it is an unnatural act. As I noted in an earlier post, community rating invites adverse risk selection by individuals against the insurers’ risk pools, which, in turn, may lead to the so-called death spiral in health insurance, unless the risk pools can attract enough relatively healthier individuals. Therein lies the case for compelling individuals of all ages to purchase health insurance.

But the authors cited above do not base their case on purely technical, economic grounds. Language such as “the greatest generational theft in world history” or “a war on the bros” is meant to generate moral outrage.

A case in point is the gender neutrality baked into the community rating required by Obamacare, which has unleashed this so-called war.

Before the Affordable Care Act, premiums for women in the younger age groups in the individual and small-group market were as much as 70 percent higher than those of men of similar age because women bear children, which brings with it greater use of health care and thus higher actuarial costs. Imposing gender-neutral community rating on such a market inevitably leads to some economic transfer from men to women through the channel of the community-rated premium, relative to pre-Obamacare premiums.

Among many Americans and most Europeans and Asians – men included — this mandated gender neutrality is noncontroversial. Perhaps it is thought of as a small token of gratitude for the extraordinary contribution to humanity women make in this regard.

Besides, there is growing scientific evidence that the physical and intellectual development of humans into adulthood is strongly influenced by their experience and nutrition in utero and during early childhood. Thus, a nation does not even have to be particularly humane, but merely smart, to grant women of child-bearing age easy access to the best maternal and child care attainable,including good nutrition. It is a solid economic investment with high social returns over generations.

Yet as I have noted previously, many other Americans seem to view children more in the nature of lovable human pets – that is, more in the nature of a private good than a precious social resource. Furthermore, some people may still be unfamiliar with the emerging literature on fetal origins and early childhood development. At any rate, there evidently is a vocal school of thought in this country that views equalizing health insurance premiums for men and women through community rating as unjust – as a “war on the bros.”

Whatever one’s view on the moral case for or against gender-neutral community rating, no one disputes that, relative to the situation in the individual and small-group health insurance market before the Affordable Care Act, that act does lead to the economic transfers denounced by the law’s critics, although the provision of age bands curbs the transfers considerably.

So it is natural to inquire how the private sector outside the individual and small-group market has handled this potential economic conflict between the young and the old, men and women and the healthy and sick. Is Obamacare unique in unleashing war upon the young, on the healthy and on the “bros” in the United States? The answer is no.

Every employed American must realize that employment-based health insurance coverage is implicitly community rated with respect to age, gender and health status.

Two individuals performing roughly the same job and acquiring the same health insurance policy – one young and healthy, the other older and stricken, perhaps, with diabetes or a recent bout of cancer – will not be asked to make different contributions to their health insurance coverage. Nor would their take-home pay reflect their age and health status through a backward shifting of the employers’ premium contribution.

Older members of Congress and their older staff members have for decades graciously accepted the cross-subsidies younger colleagues have made toward these elders’ health insurance through the fully community-rated premiums quoted them under the Federal Employees Health Benefits Program. It is only now, forced by the Affordable Care Act to purchase their coverage on their states’ health insurance exchanges, that they get a taste of age-rated premiums.

Finally, it strikes me as a safe bet that those most vociferously decrying the “greatest generational theft ever witnessed in the history of the world” and “the war on the bros” imputed to Obamacare also enjoy health insurance coverage based on implicit, non-age-adjusted community rating.

We may conclude, therefore, that if Obamacare can be accused of having unleashed war upon the young and especially on the “bros,” then private employers, who typically do not even use age bands or gender differentiation in their health insurance programs, can be said metaphorically to have nuked these hapless ones.

Think about it! In dollar magnitude, the generational theft that employers in the United States have visited on the young, on the healthy and on the “bros” among their employees is even greater than “the greatest generational theft in world history.” Being greater than the greatest – even as a thief – is no mean feat.

And where were the champions of the young and of vulnerable men while that much larger generational theft and that much longer “war on the bros” in employment-based coverage has raged for more than half a century?

As the economist Austin Frakt pointedly asked on his blog a while ago, “Where is the outrage over employer-sponsored coverage in the ‘rate shock’ debate?”

SHARESAVE

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