Starting next year, the Affordable Care Act will limit how much health insurance premiums can vary based on age. Health insurers will be restricted to charging older people no more than three times higher premiums than they charge younger people. This is bad news for the young.
It’s a fact that, in general, the older you are, the higher your medical costs (six times higher when you compare 64-year-olds to 18-year-olds). If insurers can’t charge older people according to their risk, they have to make up those costs by charging higher premiums to those younger. According to the American Action Forum, once the new health law’s various rate restrictions and other provisions kick in, 27-year-old non-smoking males may see premiums rise, on average, by 189%, while 55-year-old women who smoke may see their premiums fall, on average, by 18%.
No one, presumably, would be comfortable with the idea of fleecing our children and grandchildren in order to lighten our bills. But supporters of the Affordable Care Act have taken to arguing that forcing young people to subsidize older people isn’t some new consequence of the health law — all insurance, they claim, requires some people to subsidize the expenses of others. Take fire insurance. Ten thousand people might sign up to insure their homes, but only a couple of those homes may end up burning down. The premiums paid by those whose homes did not burn down go toward rebuilding the homes of those whose did.
“That’s how insurance works,” insists health policy analyst Aaron Carroll, who concludes that the health law’s age-related rate restriction is “really not much different than how insurance is supposed to function, by transferring money from the more-healthy to the more-ill.”
But by equating traditional insurance with the health law’s age-related rate restriction, commentators like Carroll ignore a key component of insurance in a market absent government intrusion: the freedom to buy a policy that is priced according to your own risk — a policy that subsidizes no one.
Think about why you buy insurance in the first place — you don’t do it to subsidize the expenses of others. You do it because you think that a particular policy — with the benefits it provides, the premium it calls for and the co-pays and deductibles it charges — best meets your particular risk-management needs.
It’s true that the business model of insurance involves selling policies to people on the statistical premise that only a few will file claims, which will be paid for, in part, by the premiums collected from those who don’t. But what an insurer does with the premiums it collects is no more relevant to me, as a consumer, than what Apple does with the $499 it collects for each iPad it sells. The purpose of my buying the insurance policy and the iPad is the same: my judgment that they will both improve my life.
Insurers know we buy insurance for that reason, which is why, absent government meddling, they offer those with lower expected health costs, such as younger individuals, lower premiums. If an insurer instead charged these individuals higher premiums in order to subsidize those older, the company would risk losing ground to competitors willing to charge young people less. Without attracting lower-risk customers, the insurer’s business model would fall apart. This is why premiums on a free market tend to reflect the individual risk each policyholder adds to the risk pool.
An insurance policy that reflects your risk profile is not a subsidy; an insurance policy that has been engineered by bureaucrats to artificially lower the insurance costs for some people at the expense of others is. The age-related rate restriction is but one of the myriad redistribution schemes in the new health law, designed to milk younger people to lower the premiums of those older.
Underneath all its bureaucratic trimmings, what the ACA’s age-related rate restriction amounts to is the declaration that a 27-year-old who is starting out in life, who wants to save up for a down payment on a home, who has his eye on an engagement ring for his beloved, has no right to pursue his goals until he first pays for the health care bills of every generation that came before him. That’s hardly the way to treat those on the cusp of their lives.