Age band compression under Obamacare forces young people to pay more than their fair share of premiums and gives older people a break.
What is age band compression?
So what is age band compression? Examiner came across an excellent video by America's Health Insurance Plans (AHIP) that illustrates age band compression (see: "watch AHIP's new video"). Essentially, Obamacare age band compression restricts how much the insurance carriers can vary their rate by age.
Age-based-rating before and after Obamacare
In many states, pre-Obamacare, companies could charge the full cost to older policyholders, and give the full discount to younger policyholders. Often this resulted in rates for older people that were five or more times the rates for 21-29 year old young adults. Those differences are justified actuarially; they are a true reflection of underlying costs.
Under Obamacare, the differential between the elderly and 21-29 year old young adults is capped at 3-to-1. As a result, rates for young people are much higher than they otherwise would be, while rates for older people are somewhat lower.
What about tax-subsidies?
It should be noted that younger people are more likely to qualify for tax-subsidies. But a significant minority of 21-29 year old young adults presently insured in the individual market will not qualify for those. In any event, looking at the population as a whole, the tax credits in now way eliminate the increased premiums faced by 21-29 year old age group.
Actuarial authors argue for delay of age-band-compression features
The dislocation and negative impacts on affordability (young people have less income and assets than older people, on average) caused the authors of a Contingencies article to urge the Obama administration to delay implementation of the age-band restrictions. As Examiner will discuss in a later article, the affordability issues this creates threatens the entire structure of the Affordable Care Act.
In the future, Examiner will be investigating Obamacare further. We will be paying particular attention to intergenerational wealth transfer and structural weaknesses in the plan.