Sunday, December 15, 2013

Are Younger Employees Really an Asset to Health Plans?


We’ve been bombarded by news lately, proclaiming that The Affordable Health Care Act can only be successful if vast numbers of young adults join the plans.  And news that many, if not most, young adults have little or no interest in participating has also made headlines. Further, there are reports that a substantial numbers of young adults don’t even know about it.  But, who has evaluated the underlying claim cost data?  How does one know it is correct?
I, for one, have very serious doubts that young adults are significantly cheaper to insure.

Here’s why.
1.       As a CFO, I’ve been involved in purchasing employee health plans, and negotiating the terms and features of those plans.  I frequently asked to see the data supporting the assertion that health costs were concentrated in the older age cohort but never did.  Insurance companies and third-party administrators acted like there was rock-solid support for the claim that younger people have lower medical costs, but never produced supporting data.

2.       The assertion that fifty percent of total lifetime medical costs happens in the last year of life is irrelevant.  While this widely-circulated claim may indeed be true, with the average life expectancy of women in the U.S. of 80.8 years and men of 75.9, that last year of life is very likely to occur long after one has left the labor force.  (Note that life expectancy is increasing as well).

3.       While older adults in the workforce may indeed have more chronic ailments than younger, the cost of treatment of many of those ailments is falling.  Using heart disease as an example, with the development of statin drugs, continually lower-cost methods of bypass surgery, and the use of stents to improve blood flow, the cost of treatment of heart disease has declined.  With an increasing number of excellent generic drugs for cholesterol  lowering, blood pressure management, etc. the costs of managing chronic disease is dropping as is the possibility for costly heart attacks.  Even HIV/AIDS, which once threatened the financial viability of numerous plans, is now largely relegated to a manageable chronic disease.

4.       Employer health care budgets are rarely busted by chronic disease management.  So-called “shock claims” which spiral into six and sometimes seven figures, are more associated with:

a.       Car accidents, particularly with multiple occupants.  One of the most expensive health care claims I ever saw concerned a family of four involved in a horrific accident. All required multiple surgeries, extensive time in ICU and long physical therapy treatment after.  The total cost was well over a million dollars.  The source of that claim was a young family with young children.

b.      Motorcycle wrecks that result in expensive treatment.  While there are certainly older folks riding bikes these days, they tend to meet at point A for breakfast, ride as a group to point B for lunch, and return.  Younger riders are more likely to be risk takers.  In wrecks between cars or trucks and a motorcycle, the car usually wins.

c.       The delivery of premature babies.  The second largest claim I’m personally familiar with involved premature twins. The babies were in intensive care and given special care around the clock for weeks.  Again, having babies is not the turf of fifty year olds.

d.      Finally, I’ll admit that one category of expensive treatment usually concerns cancer, and that usually occurs with middle aged or older adults – but certainly isn’t exclusively so.  We all know of heartbreaking cases of children afflicted with this scourge.  Pediatric cancer is both incredibly sad and expensive.
It may be that there is excellent data that indicates that the cost of many older employees with chronic ailments overwhelms the costs of a few young employees with more severe medical issues.  But I’d like to see the data before I was confident in the current conclusion.

Assume for a moment that I’m right and adding younger workers into newly minted exchange plans doesn’t create as much financial subsidy from young to old as anticipated.  What effect does that have on the economics of the Affordable Health Care Act?