More On Young Invincibles...And A Hidden Message

It was published a couple years ago, but New York Magazine produced a terrific article which focused on New York's "young invincibles"...young adults 19-29 years old who choose not to purchase health insurance coverage. A link to the article is here...http://nymag.com/news/features/29723/

NYC is a tough town, and one of the most expensive cities in America in which to get sick. It tends to attract large numbers of young people who try their hands at free-lancing and jobs in the arts. But the stories themselves are typical of young folks everywhere; an estimated one-third of uninsured Americans are reportedly between the ages of 19-29, and working in low-wage jobs which don't provide access to group health coverage. They decide to do without coverage because of its costs, even though they know that they are one serious injury or illness away from financial catastrophe.

But the article also hints at another significant issue: the pricing of health insurance coverage, and how insurance costs are spread across New York's "risk pool."

New York is a "community rating" state, which means that everybody buying a particular health plan pays about the same as anybody else, with no regard to age, gender, geography or other factors.

It's also a "guaranteed issue" state, which means applicants cannot be denied coverage due to pre-existing health conditions. The combination of those two factors makes health insurance premiums in New York among the highest in the country.

So for a "young invincible," health insurance premiums can run as high as $300-500 per month for a decent health plan. But a 50-year-old buying the same plan would pay exactly the same rate. And no one applying for the same health plan will be denied coverage.

Most states, including Ohio, use factors like age, gender, residential zip codes, and other factors to set premium rates, which can vary considerably from the mathematical average rate for a policy. Typically, the variation is plus- or-minus 25% from the average; Ohio permits group plans to vary plus- or minus-50% for group plans, which means that coverage for older employees with health conditions can be twice as high as for younger, healthier employees. Ohio also has no limit on the amount insurers can charge for individual policies (shopping casually, I was offered a rate on an individual policy which was TRIPLE the initial quote), permits insurers to deny coverage for applicants with health conditions.

Ohio insurers have set regulations like this in an effort to make their products more attractive to younger, healthier people, who are extremely profitable to insure because, in general, they use fewer health care services. Young folks in Ohio can buy a decent policy for $125 a month (if they qualify for coverage), but those 50-year-olds can pay a lot more. And anybody applying for group coverage can have their application denied for health reasons.

So average insurance premiums in Ohio tend to LOOK a little lower. But that's because Ohio insurers don't cover everybody. And outside of the Cleveland area, the cost of health care in Ohio is significantly lower than in New York.

Why is this important to the health care debate? Because while New York's average premium rates are higher than the national average (8th-highest in the country, according to America's Health Insurance Plans, the industry's trade group, versus Ohio's rates, which rank 35th in the country), the rates in New York are spread out much more equitably than in Ohio. Young New Yorkers pay a higher-than-average rate for coverage, but benefit from that same subsidy as the get older. This is how insurance is supposed to work.

And at the same time, a MUCH lower percentage of New York health premium goes to cover administrative costs, since New York insurers accept all applicants for any given plan at the same rate, irrespective of health or other factors. This is simply much more efficient than having an army of underwriters evaluating every single application received by the insurer, assessing an underwriting "score" based on a bunch of factors, and setting specific prices based on a complicated formula.

New York's approach also gives folks with insurance the assurance that using their plan won't result in dramatically higher rates, or cancellation of their coverage. Folks with health conditions pay the same as everybody else.

Insurance rates in New York are higher, but everybody qualifies for coverage, irrespective of their health. And a higher percentage of New York premiums goes to cover the cost of health care, and a lower percentage to cover insurer administrative costs.

It should be a foregone conclusion that guaranteeing coverage to everyone will raise the cost of health insurance premiums. That's what the evidence shows. But a community rating process would allocate those costs more equitably throughout the system.

There is very little evidence that complex administrative processes and creative health underwriting benefit the health care system at all. The simpler the process, the higher percentage of premium which is devoted to the cost of care, versus the cost of insurer administration