Subsidies for Older Buyers Give Health Insurers a Headache

8/30/13
 
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from The Wall Street Journal,
8/29/13:

Subsidies in New Health Law Can Benefit Older Buyers More Than Younger Ones.

Robert Wengrow, a laid-off frozen-food packaging salesman here, will be one of the biggest beneficiaries of the U.S. health-insurance overhaul when it fully kicks in next year.

Because of his age, 62, and his low family income, he and his wife will be able to buy a midlevel policy for $21 a month, according to a Wall Street Journal analysis of Ohio’s soon-to-launch insurance marketplace.

But the federal subsidies that make this possible for older people are causing headaches that insurers are struggling to understand. The programs reverse a long-standing tenet of the insurance business: That riskier customers pay more.

The subsidies can be far more generous to older people than younger ones, the analysis of Ohio’s marketplace shows. In some cases, older and sicker customers will pay lower prices than younger, healthier people with similar incomes—even though older people are generally costlier to cover.

This raises the prospect that older customers, previously priced out of insurance, could flood the newly created insurance marketplaces created by the health law, more quickly than younger people. If younger people don’t help offset the costs of their older counterparts, prices could rise across the board, insurers worry.

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