Ben Smith has made a splash at Buzzfeed pointing out that the age-rating regulation in the ObamaCare bill will result in a subset of young people paying substantially more for health insurance. Since older people can only be charged three times as much as young people, some young people will see big rate increases next year.

Matt Yglesias thinks this analysis is too short-sighted since all young people will eventually grow old.

The primary flaw in that analysis, however, is that obviously today’s young people will be tomorrow’s old people. So even if the existing under-35 cohort has relatively few health care problems right now, it’s still in our interests to set up a system that will provide for future needs. [...]

But honestly the issue here isn’t in the details, it’s in the fact that today’s 25 year-old is tomorrow’s 55 year-old. Whether the Affordable Care Act is really in the interests of the young cohort just comes down to whether or not it’s a good idea overall.

The problem is that the Affordable Care Act is overall a bad idea if you look at it from this lifetime perspective. Let’s even leave aside the huge issue that it does nothing to address the fact that the government allow hospitals, drug companies and doctors to charge Americans prices way above international norms.

Let’s focus purely on its value as a social insurance scheme to pool resources to spread risk/fulfill needs. The minimum medical loss ratio in the ACA is only 80 percent for individual insurance policies. That means for every $100 you play in premiums the insurance company only needs to spend $80 on actual care.

This sounds bad but several factors mean that in reality it will probably be much worse. First, the exchange need to be self-funded so it is likely they will add some fee to your premiums that will not count towards the medical loss ratio. Second, insurance companies are redefining some administration activities to count as “care.” Finally, the byzantine nature of our private insurance claim system means some of the money spent on “care” is actually being eaten up by providers’ administrative spending to deal with theses insurers.

It is possible that over your lifetime roughly 20-25 cents of every dollar spent on the ACA exchange scheme will be completely wasted. By comparison, Medicare basically has a medical loss ratio just under 98% and Social Security spends less than 1 percent on administrative costs. The ACA, if it does work, will achieve its goal in a shockingly inefficient manner.

You can argue from a moral perspective that having any near-universal social insurance system, no matter how incredibly wasteful or ineffective, is better than letting people who get sick go bankrupt. That doesn’t change that fact that overall the design of the ACA is terrible.

Image by Brooks Elliott under Creative Commons license.