What matters for the Affordable Care Act risk pools is health, not age.

One thing that annoys me is the repeated insistence that the exchanges “need” some set number of young people to keep the official premiums from increasing dramatically next year. What matters for the Affordable Care Act risk pools is health, not age.

People are using young as a shorthand for “healthy,” but that can be a mistake. While on average young people tend to be healthier than the rest of the population, being young does not automatically make someone healthier or cheaper to provide care for.  A 26 year old with cancer costs way more to cover than a healthy 50 year old.

The law allows insurers to charge old people up to three times as much as young people. Insurers wanted it to be 5:1 because that is more actuarially correct but this  3:1 ratio is still large enough that it minimizes the generational cross subsidizing. By going with this larger ratio the law made, the health within each age group becomes more important relative to the actual generational mix. If there was true community ratings — with everyone paying the same premiums — the generational mixture would be much more important, but that isn’t the case with the ACA.

This means that even if almost everyone who signs up is in their 40′s but the group is much healthier than most people their age, the cost will stay low. On the other hand, if 2 million young people sign up but they are all very unhealthy, premiums will spike.

Photo by Christiana Care, used under Creative Commons license