Linda Douglass, who works at the White House Office of Health Reform, smacked the AP last week for its “so-called analysis” in an article describing how young adults could see their insurance premiums rise when health reform takes effect. Douglass was not pleased that the AP had decided to focus only on the role that age rating plays in setting those premiums, a legitimate story that has hardly been touched by the media. The AP had used information from the health division of the Rand Corp., a California-based think tank, as well as information from the consulting firm Milliman. In a study it did for the AP, Rand concluded that premiums for young adults would likely go up by 17 percent on average, or about $42 a month. Milliman estimated that the increases would range from 10 to 30 percent for young men—on average about 15 percent.
Those conclusions were too touchy for the White House, which is working in overdrive to sell the virtues of health reform to the masses. Douglass argued that the AP failed to include the effect of tax subsidies in helping people buy insurance, and the option to buy policies with lower premiums (and skimpy benefits)—the “young invincible” coverage that some insurers are already peddling. “A selective analysis of the cost to young people that excludes tax credits available to them is simply inaccurate,” Douglass claimed.
The AP did tell its readers that the effect of tax credits was not included in its analysis. We asked actuaries from Milliman about this. “Although subsidies may affect affordability for some individuals, they do not affect premium rates,” said Milliman actuary Jim O’Connor. “We did not consider the role of subsidies because subsidies are determined by income, which is a different variable than age.” Milliman spokesman Jeremy Engdahl-Johnson explained further: “The law is not going to affect everyone equally,” adding “it was problematic to use tax credits in an analysis when the AP first contacted us because we didn’t know exactly what was going to happen.”
Douglass noted in her blog that a single person making about $43,000 (or less) would receive a subsidy in the form of a tax credit. But she doesn’t reveal that the subsidy might not be high enough for that person to buy a good policy. That’s part of the story, too, and the AP touched on it by saying that $43,320 is the most a single person can make while still being eligible for a subsidy. “Credits will vary based on income and premium costs,” the AP told readers. We would have liked more explanation here, and we hope that the AP and other news outlets can dig into the affordability question and draw out these points in another story.
It seems to us that the White House blog was a case of the pot calling the kettle black. After stating the White House boilerplate about giving young adults the “security of knowing that they won’t be driven into debt by accident or illness as they are just starting their lives out on their own,” Douglass hit the AP for using insurance industry sources:
Finally, it’s important to take a close look at the source of some of the analyses in the story. For example, the piece cites research done by consulting firm Milliman, Inc.—a firm that has worked for the insurance industry for years. The bottom line is that the insurance industry will do everything within its power to fight these reforms that are going to take the power out of their hands and put it squarely in the hands of consumers.
Douglass, a former reporter for ABC and CBS, should know better. Reporters must go to the best sources, and when it comes to complicated insurance questions, actuarial firms are some of the best sources around. In a blog post a couple of weeks ago that appeared on the site of the Association of Health Care Journalists, I urged reporters to seek out actuarial firms for help. I, too, have used them, because the best of them can translate insurance jargon into plain English. At Consumer Reports, I hired many actuarial firms, including Milliman, to rate insurance policies. I continue to believe that reporters who cover an industry need to know how it works, and the best way to learn that is to talk with those who know the industry inside and out.
For months, the White House and its allies have demonized insurance carriers while pushing for legislation that sends millions of new customers their way. The illogic of that has not been lost on the public. Douglass’s attack reminds me of how advocacy groups of all stripes have selectively used facts to reinforce their talking points. Her post leaves out all references to the Rand Corp., whose research the AP relied on as much as Milliman’s. Did she omit the reference to Rand because Rand is not known as an actuarial consulting actuarial firm that works for insurers, and thus didn’t fit neatly fit into the White House spin?
Even if it didn’t go far enough, the AP began to lay out an important issue that the media has glossed over—the interplay of age in setting insurance rates in a private system. This is not national health insurance we’re talking about, where everyone, no matter how old or young, is treated equally. We are talking about a private insurance market where companies have to make money to stay in business. If companies are required to take sick people who will file large claims, then they have to get their money somehow, and Congress lets them charge older people more.
Under the new law, insurance companies can charge an older person no more than three times what they charge a younger person for monthly premiums. Currently, they can charge as much as the claims experience of an older person will require. In the new inusrance order, that means a heavy user of medical services—most likely someone older—will pay less than if there were no limits on what companies could charge.
So older people’s premiums will be higher than younger people’s premiums—but because the companies can no longer jack up the premiums for older people who file a lot of claims (or drop those people entirely), they’ll still be making less money than they used to. They have to make up the revenue shortfall somehow, and they’ll do it by increasing the premiums for younger people. It’s a balancing act that the Congress has permitted. If carriers were allowed to charge older people unlimited premiums to compensate for the greater risk they present, then younger people’s premiums would not be affected.
This is the issue the AP was trying to address. This mechanics of age rating is worth understanding for reporters wading into the thicket of insurance regulation, which we hope they will do soon.