Note to Max Baucus: Aging Is Not a ‘Risk’, It’s Inevitable

This might seem a ludicrous statement of the obvious, but defining aging as a risk from an insurance standpoint is absurd. First, this summary of the premiums for the Baucus plan:

Key relevant provisions of Baucus’ bill [pdf] are called “Rating Rules for the Individual Market” (pages 1-2). These rules apply to people who would be required to purchase insurance in the exchange and define how much more the insurers could charge some individuals compared to others:

Issuers in the individual market could vary premiums
based only on the following characteristics: tobacco use, age, and family composition. Specifically, premiums could vary no more than the ratio specified for each characteristic:

Tobacco use – 1.5:1
Age – 5:1
Family composition:
Single – 1:1
Adult with child – 1.8:1
Two adults – 2:1
Family – 3:1

Premiums could also vary among, but not within, rating areas to reflect geographic differences. States would define geographic rating areas. Taking together all permissible risk factors,
premiums within a family category could not vary by more than a 7.5:1 composite ratio.

This is what Wendell Potter…, who testified before a House health forum, is calling “benefit design flexibility.” What this is saying is that if you are age 46-64, your premiums could be up to five times (5:1) higher than those age 21-45. And If you lived in a higher risk location, the total factor could be 7.5:1, or seven and a half times higher than the younger, lower risk group.

What’s absurd about this is that this defeats the whole point of social insurance–that is, health insurance is different in kind from other types of insurance. You can choose to purchase different kinds of insurance based on risk: fire insurance to protect your house if it burns down, for instance.
But everybody gets older. Unlike a risk factor like smoking, there’s nothing you can do about getting older. You will get older (sorry, that’s how the biology works), and there’s a very good chance you’ll need significant medical attention. I suppose one could avoid the aging premium by killing yourself, but that’s decidedly not good for you.
In other words, health insurance isn’t like insurance of goods, where premiums are based on a predictable level of losses (requiring payouts). Aging is an inevitable process, and so consumers can’t ‘hedge’ their behavior.
The Baucus plan is profoundly stupid.

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4 Responses to Note to Max Baucus: Aging Is Not a ‘Risk’, It’s Inevitable

  1. D. C. Sessions says:

    Bear in mind that Washington is hung up on “moral hazard:” if you insure people against something, they’ll take chances that make it more likely. So if there aren’t strong protections against people getting older, Americans might be tempted to do it more often.

  2. Grizzled Cynic says:

    Aging is not much of a risk when you consider the alternative is death.

  3. Badger3k says:

    I’m sure that his own coverage isn’t going to be rated at 7.5x what kids are paying. This plan is sure to be a hit among senior citizens, and anyone older than a child, who often have reduced incomes due to their ages. Does he really expect retired people to pay more when living off social security? (Or does this not apply to that, just in case they wanted private insurance?)
    In any case, yeah, fracking stupid idea.

  4. NoAstronomer says:

    I’ve been tempted to post on this subject a couple of times before but couldn’t really sum up what I wanted to say in the limited space of a blog comment.
    (IMHO) What we need to get to grips with is this :
    Health Care should not be handled as insurance.
    It’s that simple. Insurance is completely the wrong vehicle for this service.

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