How Many Under 35s' Do We Need?

Conservatives have been relentless in their confident prediction that the young and healthy will not sign up for Obamacare. George Will, and many others, state categorically that to do so would be "against their interests". The penalty is small, relative to the cost of insurance. They don't think they need it. So they won't buy in.

I have argued against this, saying that they haven't bought insurance up until now because they couldn't afford it, for the most part - not because they didn't want it. But something I agreed with Conservatives on - if they don't sign up, the risk pool will be unbalanced, and the program could break down.

Here's the key question: How many under 35s' do we need? The target is 2.7 million, out of a total forecasted Exchange enrollment of 7.0 million, or 38.6%. In an earlier blog, Ezra Klein was also wondering where the 2.7 million target came from, and he realized, looking at demographics, that about 39% of the uninsured are under 35 - hence the 39%, or 2.7 million target.

But do we need that many? Ezra said he didn't know, and that the answer needs to come from an insurance analysis of the overall risk pool. To date, I have not seen such an analysis.

So today I began poking around, and what I found out is extremely encouraging:

• The Risk Pool - I assumed the relevant risk pool was the 7.0 million target for the Exchanges. If I'm reading research correctly, that's wrong. The risk pool is the entire individual (non group) market, both on and off the Exchanges - so 14.0 (current Individual market) plus 7.0 (expected in 2014 as newly insured on the Exchanges), or 21.0 million. So new signups from the uninsured is not the only source for young, healthy folks to balance the pool. The existing individual market must already have a lot of healthy folks.
• Is Current Individual Market Pool Already Balanced? - If it is, then the full increment must itself come in as a balanced pool. But the fact is that policies in the individual market are individually underwritten in all but a few states; and policy pricing is based on individual by individual risk assessment. So from the outside, we can't know if the existing pools have been balanced in the past. We do know that insurance companies, in preparing their Exchange pricing bids, have made a risk assessment of the new pools, combining existing policy holders with new Exchange market entrants.And remember: most everyone was surprised that the bids came in as low as they did.
• What about the 3-5 million people whose policies were cancelled? - These policies were ones that did not conform to the ACA's Essential Benefits provisions. In other words, these were bare bones, catastrophic policies. And who's likely to buy policies like these? Healthy folks - and for the most part, people who don't think they need much insurance. Leave out any partisan positioning - what will these folks do? Will they moan and groan, and finally bite the bullet and buy the new, more complete insurance policies? Or will they drop coverage and pay the penalty? I predict that 80-90% will buy. And when they do, we'll have a very healthy pool.

I think we have lots of room, that the individual market (after the folks cancelled sign back up) is an unusually healthy risk pool, and it would take a veritable tornado of newly added sick people to unbalance it and cause a "death spiral". What's the needed target? Don't know - but it's way under 2.7 million.