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The Affordable Care Act leaves it to the states to decide whether they want to let insurers charge older Americans more for coverage. If a state takes no action, a 64-year-old buying his own insurance in the individual market will pay up to three times more than an 18-year-old. In the small-group market – if a small business employs an unusually large number of older workers – the same 3:1 ratio applies.

Today, in most states, there are no caps on how much insurers can charge a 60-something forced to purchase his own insurance. In the individual market, only New York State bans age rating altogether, and just three other states limit how much premiums can vary, based on age, to less than 3:1. When insurers sell policies to small businesses, Vermont also prohibits age rating, but only five other states cap increases.

To check whether your state shields older boomers in either of these markets, take a look at these charts. (A checkmark in the right-hand column means that age rating is now unregulated in that state.)

Help from the younger generation?

Under reform, more states could decide to ban age rating, or follow Massachusetts’ example, and limit the ratio to 2:1. But, politically, this would be a third-rail decision.

If older boomers pay less, younger adults would be charged more, and most are vehemently opposed to being asked to support the Pepsi Generation. As one of my younger readers once commented, “I’m willing to help my mother, but not someone else’s mother.”

Just how much more would a 20-something pay? According to researchers at the Urban Institute, eliminating age rating would lift average premiums for those 18 to 34 years old by $1,400 (from $3,600 to $5,000). Policy holders ages 35 to 44 would see their premiums rise by $800 (from $4,200 to $5,000). Meanwhile, premiums for those between age 45 and 64 would fall by about $2,400, from $7,500 to $5,100.

In other words, when costs are distributed over a large group, older adults save more than younger adults lose.

Still, many believe that older Boomers can and should pick up the higher tab for their own care. After all, throughout their financial lives, they have been luckier than most: they enjoyed first crack at the employment market when jobs were plentiful, and first dibs on housing when homes were affordable.

A generation hit hard

Yet in recent years, the economy has not been kind to the rock ‘n roll generation. One in six is now unemployed, and from 2000 to 2011, the average (mean) after-tax income of Americans age 45 to 54 (who are now in their 50s and early 60s) plunged by 13.3 percent.

By that measure, the recession has hit them harder than other age groups except Americans aged 15 to 24. Over those years, this cohort should have been enjoying their peak earning years. But as the chart below reveals, they didn’t.

Between 2000 and 2011 average after-tax income of Americans age 45 to 54 plunged by 13.3 percent. Graph: Advisor Perspectives, Inc.

Even worse, the Wall Street Journal reports, “at an age when they should be generating peak … savings,” many have been raiding their retirement funds and “applying for early Social Security benefits.” Among median-income households headed by someone age 55 to 64, total savings and assets stand at just $87,200. In 2014, they will be the 50- to 64-year-olds struggling to scrape together $7,500 to $8,500 to purchase health insurance in the individual market.

Of course, younger middle-class Americans also have watched their incomes slide, but time is on their side. They have many more years to recover. The problem for a jobless 60-year-old is that she won’t be able to make up for her losses unless she finds a higher-paying job – and that isn’t likely.

In 2014, just how many older Americans will find that they can’t afford universal coverage? Writing in Health Affairs in February, the Urban Institute’s researchers estimated that under reform, age rating means that roughly 1 million Americans age 45 to 64 will forego insurance.

Abolish age rating?

Yet there’s a trade off: if age rating were abolished, younger adults would be charged more, and some would decide they can’t afford insurance. Bottom line: “the number of uninsured older Americans would be roughly offset by increases in the number of uninsured adults in the two younger age groups (18-34 and 34-44).”

This worries policymakers for two reasons. First, we need young, healthy Americans in the pool to keep insurance costs down. Secondly, if young families decide to forego insurance, many won’t buy separate policies for the children.

How do we choose between children and their grandparents?

If we don’t want to ration care, the only rational solution is to bring down the cost by trimming waste in our health care system. This will be difficult. Most of the fat isn’t hanging out on the edges of the steak – it’s marbled throughout in the form of unnecessary treatments and over-priced products. It needs to be removed carefully, with a scalpel. But it can be done.

Maggie Mahar is an author and financial journalist who has written extensively about the American health care system. Her book, Money-Driven Medicine: The Real Reason Health Care Costs So Much, was the inspiration for the documentary, Money Driven Medicine. She is a prolific blogger, writing most recently for TIME’s Moneyland. Previously she wrote and edited the Health Beat blog for the progressive think tank, The Century Foundation. Previous work for the Health Insurance Resource Center includesWill the Supreme Court strike down health reform? She also recently provided background on Congressional health care legislation for HealthReformVotes.org, a special project of the Health Insurance Resource Center.

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105 Responses for “The Age Rating Game: Will Older Americans Pay More Under Health Reform? ”

  1. Barry Carol says:

    Correction: the friend was quoted $39K for his 2012 policy, not 2011.

  2. Maggie Mahar says:

    Barry–

    If more people need subsidies than expected, we will need to do two
    things:
    a) find more ways to cut waste. As I said, I think CMS will develop formularies for drugs — and devices– just as the VA does. Obama knows that this must be done,and has said so publicly. VA outcomes are generlaly good because they are practicing evidence-based medicine.
    Drugs & devices now account for 18% of healhtcare costs (much of that
    cost shows up on hospital bills, not on retail pharmacy bills.)
    Private insurers would be eager to follow Medicare’s lead. (We will hae many fewer private insurers and so they will have enough clout to do this–as long as Medicare takes the lead.)

    I also am impressed by the fact that the Preventive Servcies Task Force came out recommending against PSA testing. This will eliminate a great
    many prostate cancer surgeries and radiation treatments (some exorbitantly expensive) that do aboslutely no good. (The disease would never have progressed to hurt the patient. No lives saved.)

    I expect that the Preventive Services TAsk Force and, the Secretary of HHS are going to recommend covering many other tests and treatments only
    for certain patients under certain circumstances, while also reducing payments for “overvalued” tests and treatments. Again, insurers will follow suit.

    Secondly, we may well have to raise taxes, on capital gains, inheritances,
    and income taxes not just for individiuals earning over $200,000, but
    perhaps individuals earning over, say, $150,000.

    But now, we are not going to cut the subsidies. The whole point of reform
    is to make sure that everyone (or nearly everyone) has access to high
    quality, comprehensive coverage, just as in every other developed
    country in the world.

    Of course if Romney is elected and the Republicans take both Houses, all
    bets are off. The Republicans are not committed to helping those
    who cannot help themselves. They would be happy to give everyone a voucher and tell them they are free to choose as much–or as little–health care as they can afford while Congress makes the Bush tax cuts for the
    wealthy permanent. As you know, I think that rationing health care according to ability to pay is wrong. Healthcare is a necessity and no one shoudl have to go without exactly the same care that you and I would want for ourselves and our chldren. Moreover, most people do not have enough
    money to pay even a moderately high deductible before insurance begins to cover them.

    Finally, what many people don’t realize is that Romney wants to do away with employer based insurance, so even those Americans who now have
    good insurance with a large employer won’t be able to keep it. People will be very surprised. This, alone could make him a one-term persident.

    As for the cost of insurance, I don’t know why your friend’s daughter is paying so much I’m in New York, and I I pay about $450 for an excellent, comprehensive policy with no deductible, no annual or life-time limits
    that covers virtually everything I might need. I also have a very good eye and
    dental policy that is quite cheap and covers $2,000 a year worth of dental care–no deductible. Perhaps your friends daughter went to an insurance broker. Some are very good. Some are promoting certain products from
    certain insurers . . . .
    Once we have Exchanges, navigators who are not paid by insurance companies (and so have no vested intereset in certain products) will
    be helping people find policies best suited to their needs.

  3. bob hertz says:

    1.Maggie, you imply that the states control age rate up ratos…..which they do now.

    Will they still have this control after 2014 if all laws remain unchanged?
    This is a recipe for chaos when it comes to subsidies.

    2. I was under the impression from Joe Antos and Health Affairs that community rating in NY state had pushed everyone’s health premiums up to $800 a month.

    If so, keep your insurance company a secrert.

    But still, from what I have read even Healthy NY charges $400+ a month and they get huge subsidies. So I still puzzled by your low premiums, but I won’t tell anyone.

    3. and most important –

    I am skeptical that cutting waste will lower insurance premiums.

    Let’s say you insure 1 million adults and the total cost of all the claims they file is $7,000 per person or $7 billion total.

    This might be the case if you had a somewhat older group that included high-risk persons (as the ACA does include them in the exchanges.)

    Large claims would be about 70% of the total. The bulk of the large claims would be for heart attacks, cancer, complications of diabetes, joint replacements, MS, Parkinsons, etc.

    My gut feeling is that even if you cut out all un-needed diagnostic tests, you would have trouble making a big dent in the $7 billion.

    We both know that the private insurance industry, as presently constituted,
    tries to save money by passing off sick people to Medicare and Medicaid or recissions or just denying coverage in the first place.

    My problem is that while I greatly dislike these methods, I don’t see a lot of other methods that will really work.

  4. Barry Carol says:

    Bob –

    I think you are roughly correct in your assertion that large claims account for 70% of costs. If we just focus on the expenses that insurers actually pay such as hospital bills, physician and clinical fees, labs, imaging, PT, prescription drugs and the like, the first $5,000 of claims paid, I’m told by experts in the field, account for between 25% and 33% of total claims costs. That includes the first $5,000 for people with very high costs. There are significant medical costs that commercial health insurers don’t pay including long term and home health care, dental care, R&D, public health initiatives, hospital construction, etc. Total healthcare costs, including those that insurers don’t typically pay, add up to roughly $8,000 per person.

    The big potential for savings from the strategies that Maggie describes could come from avoiding surgeries that might be triggered by a high PSA score. Trying physical therapy first for people with low back pain would also be helpful. Better hospital discharge planning could reduce the number of costly readmissions. More intensive use of case managers for the very high cost cases could improve care coordination while more widespread use of electronic records could reduce duplicate testing and adverse drug interactions.

    I think it would be easier for doctors to embrace guidelines such as the recent PSTF pronouncement on PSA testing if we passed safe harbor protection from failure to diagnose lawsuits if doctors follow evidence based guidelines where they exist. I’m quite certain that defensive medicine is a factor in excessive testing now along with patient expectations and the opportunity to make more money under a fee for service payment model.

    If it were up to me, I wouldn’t pay for some of the ultra expensive cancer drugs that only give the patient an extra month or two of low quality life. I also think there is considerable potential savings from more aggressive fraud mitigation efforts in the Medicare and Medicaid programs. That’s important because it would help to free up money to pay to subsidize insurance for people age 64 and under.

    It is no easy task to get doctors to change long established practice patterns. The specialty societies need to get behind it and PCP’s need to push back against patients who wrongly think that more care is better care and more expensive care is better care. To help them do that, we probably need to pay them more for their time. At the same time, autonomy is a big deal in the physician world. Many of them don’t appreciate outside interference no matter how well intended or how much expertise the outsiders have.

    Employers, for their part, should embrace tiered network insurance products that would require patients to pay enough more to get their attention if they insist on going to a high cost provider whose care quality is no better than more cost-effective competitors.

    If Medicare is to take the lead in all of this to provide political cover for commercial insurers who would want to follow CMS’ lead, there are powerful political interests that need to be persuaded. That’s no easy task either.

  5. Maggie Mahar says:

    Bob–

    Yes, under the Affordable Care Act states will control Age Rating.

    Insurers will not be able to charge older people more than 3 times as much as they charge a 20-year-old, but the law is very clear: States can also prohibit age rating altogehter, or lower it to 2:1.

    Your question reveals how even a very well-informed, intelligent person is not aware of the many, may ways that the Affordable Care Act will lower premiums. This is partially becuase few people have time to read the entire law, and “the good” is in the many details. It is also becaue so many people (including, I’m sorry to say, single-payer advocates who I admire, have spread so much misinformation about the law.)

    For exampl: , No , you don’[t have to pay $850 a month in New York. (Many people who don't live heret don't know the market, and haven't bothered to do the nitty-gritty research.)

    I pay less than $500, and there is also a program called "Healthy New York" that makes very good insurance significantly less expensive for people who earn somewhat less than I do. (Here I'm talkng about people who earn well over Medicaid imits, but are in the the lower end of the middle-class.

    Finally, perhaps I should have said that I chose a policy that requires me to stay "in network." I have no problem with this. I have never called a doctor who wouldn't take my insurance. (And the docs I see are all either on the
    Upper West Side (where I live ) or on the East Side (Park Avenue) close to where I used to work.

    There are, of course, doctors who wouldn't take my insurance. But in my experience (and I've been in plans where I could go out of network, and even see docs who took no insurance), they are no better than the in-network docs in my very large plan. (The key is just that you want to be in a very large network.)
    ]
    Finally, we already have evidence that reducing waste cuts spending.
    Hospitals are already reducing waste (anticipating what wil happen under the ACA) and Medicare spending has fallen sharply in the last two years.

    Try Googling “Peter Orszag” (former CBO director) on “growth” and
    “Medicare Spending” and slowing. Much has been written about this.

    But I’m afraid that people who spread misinformation word-of-mouth just
    don’t do that much reading.

  6. Brandy says:

    Everyone should have affordable health care. The fact that I as an ordinary worker who has insurance pays more for the same drug as someone in the military or Canada, is insane. Health care needs to be regulated. False claims need to be stopped, which are driving up health care costs.

  7. Costs will always go up for everyone, patient, employer, and medicare. Our healthcare system is not based on wellness but sickness. If you want medicare to cover your healthcare needs you need to be sick, if you want medicare to cover health wellness your out of pocket, its not a benifit.

  8. Tiffany says:

    The attitude that some younger people have (I’ll pay for my mother but not someone else’s mother) is symptomatic of a larger problem in America. We don’t really care about our effect on other people. In some ways, this is why the ACA would be a good thing. Even though at the moment it doesn’t have anything to stop age-rating (it should) it does make sure that everyone has health care coverage, regardless of moral objections or people who want to ride the system. Sam Ennis wrote a great column on some of the other benefits of the ACA here: http://www.constructionlitmag.com/additions/appeal-of-the-affordable-care-act.

  9. Maggie Mahar says:

    Brandy

    Brandy– Yes, the VA has been very succesful in negotiating for lower drug prices for Vets. But Republilcans pushed through a law that banned Medicare form following the VA’s example

    Neverthelesss Medicare, ike the VA , has the clout (size) to refuse to overpay.

    And President Obama has indicated that letting Medicare negotiate is stil on the table. See http://www.healthbeatblog.com/2011/04/using-medicares-clout-to-negotiate-drug-pricesdid-obama-put-that-back-on-the-table.html

  10. Maggie Mahar says:

    Tiffany & Keith

    Tiffany–
    ]
    Thank you very much for you coomment.
    You wrote:
    The attitude that some younger people have (I’ll pay for my mother but not someone else’s mother) is symptomatic of a larger problem in America. We don’t really care about our effect on other people. In some ways,”

    Yes i’m afraid that is true of many (but not all, and I hope, not most )Americans.

    You add: ” this is why the ACA would be a good thing. Even though at the moment it doesn’t have anything to stop age-rating (it should) it does make sure that everyone has health care coverage, regardless of moral objections or people who want to ride the system. Sam Ennis wrote a great column on some of the other benefits of the ACA here: http://www.constructionlitmag.com/additions/appeal-of-the-affordable-care

    Yes, I agree. And thank you for the link.

    Keith:: The good news is that he Affordable Care Act set s up financial bonuses for providers who try to keep paients well.

    They wil be paid more if they keep patients out of the hospital– and managing their chronic diseases.

    Tiffany

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