The Age Rating Game: Will Older Americans Pay More Under Health Reform? 

The Age Rating Game: Will Older Americans Pay More Under Health Reform? 


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, a special project of the Health Insurance Resource Center.

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107 Comments on "The Age Rating Game: Will Older Americans Pay More Under Health Reform? "

May 28, 2012

Quit stealing from young people just to steal the next electon. Healthcare coverage is a joke when you are male and under 50. All you need is catastrophic coverage. Why be enslaved to fund political campaign give-aways?

May 28, 2012

To answer the question that is this the title of this post: why not, people think they can live to 80 or more years after retiring at 65 to 70, why should the young be literally burdened with keeping the elderly alive and foster true dependency reversed? Hey, I’m over 50, and I would not ask my children to pay my SSI and Medicare for more than 10 to 15 years. We should accept that our species isn’t intended to live more than 75 years. But, this culture isn’t interested in realistic boundaries, is it!?

May 28, 2012


By what specific objective principle or edict?

Why don’t we just summarily terminate all those expensively irksome people ages 76 and older?

May 29, 2012

Soylent Soda.

How does it taste?

It varies from person to person.

May 29, 2012

The two of you are so predictable. Keep on twisting my comments to demean and bully. Pathetic!

And when you try to deflect with usual retorts of “you do it too” , who is the bigger person, the bully or the victim? Oh yeah, in your world, the bully is the guy! Good luck with that.

Hang out in any nursing home lately? Yeah, there’s a strong argument to reasonably argue my perspective.

May 29, 2012

As usual this is a conversation about the haves versus the have-nots, disguised as a policy discussion. There always has been and will always be a population with more than enough assets to cover any kind of basic and ancillary care they both need and want. I see it every day as a senior care giver. There is a vast network of profitable enterprises thriving on the needs and wants of aging adults.

Joint replacements, organ transplants and advanced (i.e extravagantly costly) “treatments” for cancer, cardiac, orthopedic and other costly conditions of aging continue to proliferate with the economic vitality of new car sales. As long as we continue to allow for-profit companies to take in sums large enough to cover extravagant executive compensation packages, sales bonuses for high achievers (selling, not furnishing healthcare but pumping the premium revenue stream) and advertising packages larded with enough funds to buy the most expensive production, print and broadcast media… we can expect that the costs of actual “care” will remain high. (There is even a proliferation of hospice companies competing for that little four thousand dollar Medicare “benefit.” Many are excellent but others fall way short of the blessings the sector is trying to groom.)

Maggie is right about the scalpel approach. I think a good place to start would be a return to the day when medical expenses were deductible for individual taxpayers, not the corporate entities that have taken that plum away. It ain’t no “plum” for the family faced with the costs of caring for someone with advancing dementia, incontinence and lost mobility, needing 24/7 attention. It only becomes a plum when harvested by companies competing for tax dollars and corporate benefit contributions. If the have-nots were once again tax-advantaged those now in that line of work would tighten up their game. As Maggie’s example said, paying for the needs of MY aging parent is not the same as paying for everybody else’s. If licensed, regulated assisted living arrangements and licensed, regulated private-duty care-givers were tax advantaged for those who pay for them, the medical-industrial complex would experience a corrective that would do the job of a thousand scalpels.

And this conversation would quickly get refocused on the real problems of aging, not the challenges of not having enough money.

May 29, 2012

Ok, if those of you really want the class warfare agenda of the left/Democrats, let’s look at those shiny examples of homogenous societies that allegedly practice or practiced it so wonderfully, China and the former USSR come to mind. Not reading them as sound examples of utopian worlds or equal health care for all.

As I came on after reading the editorial piece of The Week magazine from April 27, I’ll leave you this for the day:

(since 401K plans were started in the 80s) “they are a disaster in the making. Half of all workers have put nothing away for retirement. Baby boomers ages 55 to 64, on the cusp of retirement, have a median 401K savings of only $78,000–a pittance. To sustain a middle class lifestyle across 15 or more years, the financial experts say, a retiree needs savings of at least $900,000.”

Oh, by the way, William Falk who authored the piece, starts with this near the top: “Most people do not act responsibly or rationally or even in their own long term self interest.”

Yeah, so show me this piece of paper I signed saying I owe all in this culture equal and fair opportunities irregardless of their poor choices and belief systems. I am not advocating for anarchy or self termination by proxy, but, how about this simple concept of ACCOUNTABILITY. You know, that thing dumped in the garbage can by the doors entering political arenas of federal and state halls?

May 29, 2012

Dr. Determined, I hope that “utopian worlds or equal health care for all” was not aimed at what I wrote. I have no illusions that there will always be well cared for people at the top of the economic heap. And believe it or not, that doesn’t trouble me at all. It seems to be part of the natural order not only in human history but most of Nature. (Yeah, I know animals are not piled into economic heaps but you know what I mean.)

What bothers me is the very wrong belief that civilized people have no responsibility to take care of those among us who for whatever reason either do not or cannot care for themselves. And yes, that includes those who are stupid, lazy, irresponsible and careless as well as the orphans, infirm, aged and those with birth defects as well.

As a society Americans piss away enough resources to accomplish that very modest responsibility and never miss them, but for some reason we opt for selfishness and indifference instead. Just yesterday someone asked me if I thought that tax policies changed human behavior (the argument was about earned income tax credit) and I said no, of course not. The reason we have such policies is not to change behavior but to furnish a reasonable safety net which can easily be supported by our vast resources.

I realize that there are some who regard the safety net a hammock, but that attitude simply underscores their unfamiliarity with a level of desperation and need that is a large and growing challenge to our way of life. Yesterday was Memorial Day and few people connected the dots indicating the reason a great many men and women sign up for military service is the scarcity of economic alternatives and the diminishing of the American Dream called upward mobility. Add to that the reality that veteran suicides average about fifteen per day (more vets die in a year by their own hand than are killed in combat over several years of actual war) and the size and effectiveness of that “hammock” is far short of what it needs to be.

No, utopianism is not my dream. I will settle for a little higher baseline of savagery and indifference.
(And by the way, I really like that other comment that “healthcare debt should not live longer than the beneficiary.” Wish I’d said that.)

May 29, 2012

“What bothers me is the very wrong belief that civilized people have no responsibility to take care of those among us who for whatever reason either do not or cannot care for themselves. And yes, that includes those who are stupid, lazy, irresponsible and careless as well as the orphans, infirm, aged and those with birth defects as well.”

But that should be a choice. Resentment nor inconvenienced should not be the reaction to helping others. Politicians do not understand true sacrifice and commitment, hence where we are now. And your starting comment about utopian worlds or equal health care, where did I write that?

This bs concept we should save all potentially at the expense of the community, well, good luck with those infinite resources of time, money, and energy expended as both provider and patient.

May 29, 2012

And your starting comment about utopian worlds or equal health care, where did I write that?

Um, here.
It was copy and paste.

As for the rest, we will have to agree to disagree.
To that end, here is a link I just came across.

May 29, 2012

I’m surprised I used the word utopian, not my usual term. But, even so, I take exception to those who just advise what is basically enslavement, if not at least accepting entitlement, and then getting so indignant when appropriately called on it being unacceptable as a societal standard without exception or debate.

I really hope the Supremes do dent PPACA at the very least. It will be interesting to see who howls loudest.

May 29, 2012


May 29, 2012

I’m sorry, I missed the part where I was interested in lame labels.

May 29, 2012

Healthcare debt should not live longer than the benificiary. IF it does, there is a monumental problem of theft by legislation going on. Our government is borrowing to pay for grandma’s artificial hip she got between dialysys runs. That is wrong.

May 29, 2012

The point of this post is that under reform, many older Americans (55-64) will not be able to afford health insurance.
They have been hit hard by unemployment. Their 401ks were hit hard by
the 2000 crash (and to a large degree, never recovered. See the history of the S&P since 2000). If they were cautious and invested in Treasuries, they now find that those Treasuries pay very little interest. Their income has fallen by 13% over the last 11 years. . (If you don’t have discretionary income, you can’t save.) On in six in this age group wants full-time work and is unemployed.
(And John– making healthcare deductible doesn’t help much if you have little income to deduct it from )
Meanwhile, under reform, an individual policy for a 58-year-old will run about $8500. For a couple, perhaps $15,000. If a middle-class couple earns $67,000 a year, jointly, before taxes, they will not qualify for a subsidy. Unless they are lucky enough to work for a large employer who provides generous insurance, they will have to pay that $8500 to $15,000 out of pocket– plus deductibles and co-pays. Many just won’t be able to do it.
If these middle-class 55-64 year olds don’t have insurance, they will still be with us. They will get sick, their diabetes will progress; they will be diagnosed with cancer; some will develop early-stage Alzheimer’s.
If they don’t receive regular preventive care, their chronic diseases will get worse (this is the time of life when chronic diseases progress) and they will need more healthcare.
We, as a society, will wind up caring for him. (We’re not going to let a diabetic die of gangrene; we will admit him io a hospital and amputate his toes, his foot, his leg . . . If a 57-year-old woman develops breast cancer, we will provide surgery, radiation, etc. even if she doesn’t have insurance.
So even if young people don’t pay higher premiums to help support this older generation, they will wind up paying for them one way or another.- And if the 55-64 year olds don’t get preventive care and help managing chronic diseases, they will be that much sicker– and that much more expensive when they go on Medicare.
Both progressive politicians and the administration agreed to let insurers charge older customers more because they didn’t want to alienate the younger voters who helped elect Obama. (This is why Obama originally opposed a mandate; he didn’t want to anger the many 20-somethings and 30-somethings who supported him and were opposed to being told that they had to buy insurance.)

But ultimately, if 55-64 year olds can’t affords insurance We All Lose:.They get sicker, and we all pay for them.
John– the largest share of our health care dollars are spent, not on extreme futile measures during the last weeks of llfe, but on chronic diseases which because they are “chronic” require years of treatment. (For example, the 3-5 years between the time a cancer patient is diagnosed and he or she dies, the nine or 10 years that a diabetic goes downhill, requiring amputations, losing his eye-sight, etc.. . the ten years that someone suffers from heart disease.
Iin most cases, we don’t know which of those cancer patients or patients suffering from heart disease will surive and which will die. So we have to treat all of them.
The only win/win for all of us is if Everyone has insurance old and young, and we all share in the cost, based, not on our age, but on our income– with poorer Americans receiving subsidies.
In every other developed country, ,practically everyone is covered, and young people help pay for older people, knowing that when they are old, younger people will help pay for their care.

As a result, total health care spending is much lower because everyone receives preventive care and Chronic Disease Management. (These countries all do a much better job of manging the chronic diseaes that middle-aged people suffer from. In addition, they pay less for every procedure, pay less for drugs and devices, and don’t do nearly as many tests.

The government regulates prices. Doctors earn significantlly less than
docttors in the U.S. (even after adjusting for differences in the cost of living and the fact that our doctors graduate from med school with large loans.)
Hospital CEOs earn far less. The government doesn’t let drug-makers and
device-makers gouge their customers.

We over-pay for virtually everything, and our system is set up to overtreat.

We want to make sure healthcare is affordable for 50-64 year olds because this is a time of life when good care is crucial. But we also want care to be affordable for 20-somethings, 30-somethings and their children.

The only way we can make healthcare affordable for Everyone is by using that scalpel to trim prices, and eliminate unncessary procedures (Tests are at the top of the list, along with unnecessary sugeries (back surgery,
C-sections, knee surgeries, and many other surgeries that we know are done too often. Young patients as well as older patients are regularly overtreated and over-tested.

Finally,–and this is most important– we need to think collectively about the cost of care– what is best for all of us, not what is best for “me” Few Frenchmen, or Germans or Swedes or Canadians would say “I’m wiling to help pay for my mother, but not someone else’s mother.” They are not just kinder, but wiser than we are. Ultimately we all wind up paying for other people’s mothers (assuming that we’re not going to leave them to die on the street outside of a hospital).

May 29, 2012

Paying for care that just delays mortality is a waste of time, money, and energy. Making wide sweeping expectations and dismissing the big picture of accepting we are ignoring the limits of what nature intends of us is just a reinforcement of the adage “hear the lie enough until it becomes truth”.

Your extended thread comments will not figuratively shout down dissenters who know the facts and realities of health care. Society has to contract if to survive as a viable part of our species.

You know why many countries resent us? We are a lousy representation of what humans should be doing as part of this ecosystem.

Can’t wait to read the bully retorts to that last opinion.

May 29, 2012

By the way, just reading how Obama is increasing the use of drone strikes in countries like pakistan shows what is the real caliber of this president. You really think he is interested in dialogue and discussion? You do not respect the sovereignty of other counties who do not have to abide by our choices, what the hell do you think this guy has in mind for his own people?

He acts like a king, and I’ll be damned if I will accept being a subject. Nor put up with his PR minions who echo false promises and stretched facts/statistics as I have read here.

Man, June can’t come soon enough for me.

May 29, 2012


Everyone other country in the developed world agrees with you about our
obligations as a civilized society to provide healthcare for all.

But inequality of the type we now see in the U.S. is not part of the “natural order of things.

It is only in the past 32 years that we have seen such growing gaps between the haves and the have-nots in this country, and these gaps have undermined both our society and our economy.

In other developed countires the vast majority of people are middle-class. In the U.S. the middle-class has been disappearing, while the number of
very poor and very rich Americans grows.

We were far more prosperous — and less divided as a society– in the 50s and the 60s when white America, at least, was largely middle-class. That is no longer the case.

(If you live in a large city on one of the Coasts you might not be aware of how many poor white Americans there are living in rural areas. Fully Forty-Two percent of Americans Living Below the Poverty Line are
Non-Hispanic Whites.

Tthe U.S. has a larger percentage of children living in poverty than any other country in the world. Thjs is not becase we have many illegal immigrants. The vast majority are the children of native-born Americans.
The majority are white. Many go to bed hungry. And we claim that, as a society we love children!

At one time the U.S. led the world in the percentage of the population that received a college education. Now we rank 12th– behind Canada, Korea, the Russian Federation,
Japan, New Zealand, Ireland, Norway, Israel, France, Belgium and Australia

As this Bloomberg editorial (written by Bloomberg’s editors) points out this is because we are not putting enough resources into public
education pre-school from 12.

The editors write: “If the U.S. is to achieve its goal of a . . society that provides equal opportunity for all, policy makers must target preschool, elementary and secondary education, where the foundation of success or failure is built . . The U.S. must focus on the base problem: failing younger students trapped in failing public schools —

They go on to point out that a college education is not a luxury– it has become a necessity. “.College graduates earned an average of $1,053 a week in 2011 and had an unemployment rate almost half that of high school graduates, who earned an average of $638 a week. This pay gap continues to grow.”

Writing about how the U.S. has fallen behind, the College Board writes that free public pre-schools should be available to all Americans.
Class sizes of 24-26 in public elementary schools are far too large for even the best teacher to give students the attention they need-.

Meanwhile, cities like NY have been cutting back on the numbe of teachers and so classes sizes are growing

As Paul KRugman recently said: We need to “hire back the goddamned teachers.”

To their credit, some A students choose to become public school teachers, but we need more of them. Starting salaries must be higher and the amount a teacher will earn after 35 or 40 years of teaching should be equivalent to what other professionals earn toward the end of their careers.

What does all of this have to do with heatlhcare and the cost of heatlh care? We know that level of education correlates with health: people who are better-educated are both healthier and wealthier than the rest of
the population.

May 29, 2012

Thanks, Maggie. You are a wellspring of good information. Keep up the good work.

I just came from another thread dealing with a commenter for whom I furnished a sterling link and she replied “The facts you conveniently quoted are often wrong.” It’s frustrating trying to reach otherwise intelligent and well-meaning people capable of that kind of compartmentalized thinking. We seem to be reverting to a kind of Dark Ages.

Here’s a link I came across last week that will rub a lot of fur the wrong way but I sure made me feel better. I’m coming to believe it’s best to ignore irate responses and let the sparks fly.

May 29, 2012

Since this is a health care blog, I would to Maggie above by noting that if you look at health care expenditures, we were in a pack with the rest of the world up until somewhere around 1980. Since then, our spending has diverged upwards away from the rest of the OECD. At the same time, almost all of the rest of the OECD was gaining universal coverage.

As to general inequality, it previously peaked in 1929, then again in 2007/2008. Guess you wil need to decide for yourself is there is some link between massive inequality and financial crises.


Barry Carol
May 29, 2012

Maggie –

Insurers will tell you that at the population level, people in the 55-64 age range use 5-7 times more healthcare than people in their 20’s. So, with a 3 to 1 age rating limit under PPACA, older people are already being subsidized by the young. If comprehensive health insurance could be had for $1,000 per year per person like car or homeowner insurance, both a mandate to buy insurance and an end to age rating would be reasonable. Expecting a young healthy person to pay $5,000 ($10,000 for a young couple) for a benefit that they are likely to use very little of is unreasonable given the likelihood of relatively low entry level earnings and, probably, school loans to repay.

Regarding utilization of healthcare services in the U.S. vs. other countries, an article in the current issue of Health Affairs about the Japanese healthcare system notes that annual per capital physician visits are 13.2 in Japan vs. 3.9 in the U.S. Annual hospital admissions per 1,000 people are 119.9 in Japan vs. 92.8 in the U.S. MRI units per million people total 42.1 in Japan vs. 25.9 in the U.S. Yet, Japan spends only about 8.5% of GDP on healthcare vs. over 17% in the U.S.

While 75% of U.S. healthcare spending relates to the management of chronic disease, a very large amount of it, I believe, is not all that expensive. For example, I take five drugs for management of heart disease all of which are now generics. Depending on what Plavix costs in generic form, all five combined are likely to cost less than $1,500 per year. Throw in another few hundred for an annual stress test and we’re not talking serious money here per person. Multiply my experience millions of times, though, and it adds up. The same is true for millions of diabetes and asthma patients whose condition is well controlled with medication.

As for preventive care, it’s not likely to ward off dementia or Alzheimer’s. It may catch cancer at an earlier stage. I’ve known plenty of people who have lived near perfect lifestyles with respect to diet and exercise and still developed cancer or, later, dementia. I’ve said many times before that good preventive care is likely to help people live longer and healthier lives which are good things but it’s not likely to save money for the healthcare system. Suggesting that it will is disingenuous, I think.

The primary driver of high healthcare costs in the U.S., especially in recent years, is high prices. Hospital prices, along with drug and device prices are the main culprits. Overtreatment is a factor. Uncoordinated care, especially for the expensive dual eligible population, is a factor. So is fraud and defensive medicine. So is futile end of life care and unnecessary surgeries and procedures in certain specialties.

Other countries pay less for drugs because they can get away with free riding on the ability of drug companies to charge high prices in the U.S. market. If that were stopped, we could wind up with less innovation. Alternatively, drug companies might figure out a way to charge foreign customers more so U.S. customers could pay less. Oddly, generics are actually cheaper in the U.S.

Back to the subject of your post, though, I don’t think ending age rating is the answer. In New York State, for example, the number of young people willing to pay the required premium in the individual insurance market is infinitesimal. It won’t work.

May 29, 2012

Barry- I think the better way to look at it is where are we spending more than expected compared with the rest of the world. I would highly recommend that you read Carroll’s series for this info.

Or, you can find the same data but in a different format at McKinsey.


May 29, 2012

Waiting for the call of censorship.

May 29, 2012

Hold your breath, please.

May 29, 2012

Hi Polly.

May 29, 2012

I know the wall street journal is a right/conservative rag, but, I think this commentary calls Obama for what he is, and what his echo chambers are trying to do at sites like this:

You read it and decide, if with independent thought and not just the drones of partisan platitudes. Hop the link worked from my IPod.

May 29, 2012


Good to hear from you. You are right that healthcare for older Americans (55-64) costs 5 to 7 times more than care for 20-somethings.
In this way, the Affordable Care Act, which says that insurers can charge older people only 3 times more is a boon for this group
I discussed this in the original two-part post that appeared on You will find those two posts here
and here
(When THCB edited the two-part post to fit its format, it had to cut some sections, and these points were lost.)
But the problem is that Americans who are 55-64 are no longer as much wealthier than younger Americans as they once were. As middle-class wages have stagnated, their “peak earning years” are no longer as lucrative as they were in the past..
As I indicate in the post, over the past 12 years the 55-64 year old group has been hit hard by unemployment, declining incomes and losses in their 401-k funds (many of which never really recovered from the 2000 crash). Many simply won’t be able to afford to pay premiums that are 3 times higher. You can’t get blood out of a stone.
Middle-class individuals and couples who earn just a little too much to qualify for subsidies (say a couple earning $68,000, joint, before taxes) won’t be able to ante up $15,000 for insurance–plus co-pays and a deductible.
On the other hand, a 35-45 year old who earns $150-000 to $250,000 a year can afford to contribute $10, 000 a year to the health care pool–whether through taxes or premiums. (Over the past 32 years, as the rich have gotten richer, and middle-income Americans have gotten poorer, there are many more wealthy 30-somethings and 40-somethings who could help. )
On reducing heath care costs: I agree that preventive care may not reduce costs. If people get good preventive care and live longer, they may well cost society more.
But chronic disease management does lower costs. This is one reason why health care costs are lower in Europe than they are here. They are much better at managing chronic diseases.
Here, I’m not thinking of Alzheimer’s, but diabetes. Diabetic patients don’t t have to go blind– or undergo a series of amputations–if the disease is controlled. If patients suffering from heart disease are given good advice, many could improve by taking low-cost medications, changing their diet and exercising. A great many don’t need expensive invasive procedures.
As for other countries: patients in Japan see doctors more frequently, but are much less likely to be hospitalized and undergo surgery. (The Japanese are very reluctant about surgery, and surgeons are paid very little. Their doctors are paid more to prescribe medication rather than hospitalize patients. This is much, much less expensive.
In Europe, when patients are hospitalized, they do spend more time in the hospital, but much less happens to them while they are there. Many fewer tests. Many fewer procedures. Many fewer consultations with various specialists.
Their health care systemsby and large, are not “for-profit” systems, and so there is not the same money-driven incentive to ramp up costs.

May 29, 2012


Thank you.

And the “Open Letter to the Good People of Iowa” that you link to is great– and at the same time, appalling

. It demonstrates how ideological divisions in this country have led some
people to stop thinking

I urge readers to take a look at it here

May 29, 2012


Yes, since 1980, government- regulated universal coverage has spread throughout the OECD while our laissez-faire system which assumes (wrongly) that market compeition will tamp down prices has
led to sky-rocketing costs.

You write:

“As to general inequality, it previously peaked in 1929, then again in 2007/2008. Guess you wil need to decide for yourself is there is some link between massive inequality and financial crises:


Dr. Mike
May 29, 2012

There is certainly a compelling argument that can be made for universal government supplied coverage for health care expenses. But there are legitimate concerns that can be raised about the success of adopting one of the other current models of universal health care – is the US different in some fundamental way that will thwart the cost-controlling aspects of current universal health care examples?
This is not to say that we shouldn’t be discussion universal health care – we absolutely should and I believe that there are at least several ways it could be implemented that recognize and take advantage of uniquely American characteristics.
But it doesn’t help the argument for universal health when this lie about our so called free market system keeps being repeated. The US health care system is not a free market in any way that matters. Yes providers (hospitals, physicians, etc) are rewarded for volume over quality, but where is the competition? Insurance companies are exempt from anti-trust laws and it shows. That is not free market. Physicians have no meaningful control over their prices. That is not free market. Patients do not pay for their own care – that is not free market. Patients have no incentive to compare providers – their insurance largely dictates where they go. This is not free market. So what is responsible for sky-rocketing costs? The third party payment system – the very system that is strengthened under health care reform. We need to be freed from both the current system and from the so called reform and focus on crafting a uniquely American approach to providing health care to all our citizens. In my opinion an approach that includes true and proven free market incentives to reduce costs while improving quality of life. To claim that the free market has failed us it to take off the table the very thing that can make affordable universal health care possible.

May 30, 2012

The US health care system is not a free market in any way that matters.

That’s a refreshing observation, Dr. Mike. I fully agree. In fact, due to literally thousands of exceptions and contradictions the words free and market are virtually meaningless. For starters, the term “health care” itself includes tons of expenses having little or nothing to do with healing or medicine. I haven’t pasted my laundry list here, but here is a link.

At the core of the challenge is the notion that health care is a market commodity, subject to the same competitive dynamics as, say, safety features for next year’s automobiles or memorable vacations on a cruise ship. As consumers we can accept that we might wait a few more seasons to keep up with the brother-in-law who just bought a new car, because it’s still priced out of reach, and besides, in a couple of years I can get exactly the same car for considerably less cuz it won’t be new any more. And if I learn that the guy beside me on the airplane or the next cabin in the ship paid half or less than I did, I swallow hard and remind myself that I could have had the same deep discount had I been willing to wait until the last batch of tickets were being sold for less simply to fill out the passenger list.

Sick and injured people and their families haven’t that kind of flexibility or incentive to wait. Time is usually of the essence. (In fact, I’m sure you know that persuading the fifty-five year old guy worried about high PSA numbers without any other signs or symptoms to consider “active surveillance” instead of going for more invasive options is a tough sell.)

Having followed this debate for several years now I have observed a couple of muddy ideas causing confusion.

►The difference between professional compensation and corporate profits. Too many doctors, especially those in small private practices, are much better at medicine than accounting.

►Most billing is based on coding numbers rather than actual costs.

►The many so-called non-profit outfits — both medical and insurance — serve more as money-laundering centers for clusters of for-profit operations woven into the same matrix along which nearly all patients are passed. (Not to mention extravagant executive compensation packages for both insurance and medical service providers which are clearly contrary to the spirit of anything calling itself “non-profit.”)

I could go on, but eyes are already glazing over. Besides, the day is just starting and my time is limited.
Thanks to anyone who has made it this far.

May 30, 2012

There’s no such thing as a “free market.” Human affairs get regulated one way or another.

May 30, 2012

Dr Mike-, John, Bobby G, Everyone

I’m afraid this is going to be a long comment, but you’ve raised some issues that I think will be of interest to many readers.

Let’s begin by defining a free market. In a free market the government does not set prices. Sellers compete with each other by offering their products and services at various prices. Buyers then pick the products and services that they believe offer the best value at the best price.
If buyers think a product or service is overpriced, they won’t purchase from that seller, and the seller will be in danger of going out of business. At that point, the seller’s only recourse is to put his product or service on sale, lowering his price.

Note the customer or consumer is in the driver’s seat. He decides what a product is worth, and what is a fair price.

Sellers who are able or willing to deliver their product or services for less–either because they are more efficient or because they are willing to earn less– also have some control over setting the “market price.”

Supply and demand also plays a role. When there is a shortage of a product, buyers will pay more because they are afraid that the product they want won’t be available if they wait too long. Thus, if there are a shortage of houses for sale, they will pay more for a house. If, however, there is an abundant supply of products or services available, they pay less. When a great many houses are on the market, it becomes a “buyer’s market,” and buyer’s can negotiate much lower prices.

In a free market, the government’s only role
is to make sure that sellers don’t get together to quietly agree in what they all charge. This is called “price fixing” and is illegal because it undermines competition. The government also tries to make sure that big companies don’t compete unfairly, strangling big companies. Thus the government tries to break up monopolies.

Now look at our health care system.

Dr. MIKE, you write “Physicians have no meaningful control over prices. That is not free market.”

Physicians are the Sellers, and In a Free Market they Are SUPPOSED to Have NO Meaningful Control Over Prices. As I said in a free market customers are in the driver’s seat. Customers make the judgment as to what the product or service is worth

In a free market .Health care providers could “ask” what they wish, but no one would be obliged to pay that price. If they charge high prices, customers will buy only if they are persuaded that the treatments that doctor or hospital offers are significantly better than the treatments offered by other providers.

This also would be true when the seller is selling to the government.
For instance, defense contractors “bid” for jobs, and in theory, the government picks the lowest bidder who offers a satisfactory product that meets the government’s needs. (Of course, sometimes the bidding is “fixed” but this is not how a free market is supposed to work.)

So, in a free market, Medicare and Medicaid would look at a doctor’s (or a hospital’s) outcomes, adjust for whether some treated sicker patients than others, and pay the lowest price available among providers who showed generally good outcomes in a particular region. (Price would vary according to differences in cost of living, and what the hospital had to pay for labor, etc. in different regions.)

If a free market, supply also would play a role. In places like Manhattan, Miami or L.A. there are an abundance of specialists ((In Manhattan, I can get an appointment with a Park Avenue specialist who takes both Medicare and private insurance within 2 or 3 days, even if I’m a new patient. . Thus in Manhattan, both I and Medicare should be paying specialists less.

In a free market where competition worked to bring down prices, doctors who want edto earn more, would have to go to an area where there is a shortage of doctors– perhaps a rural area. The government might apay them more to work in places where few doctors want to live– say, rural Alabama, where public schools aren’t as good, there aren’t many gourmet grocery stores or restaurants, and few opportunities to attend a concert.
But of course our health care system doesn’t work that way. Doctors in Manhattan generally charge more than doctors in Alabama. Hospitals in N.Y. charge far more than hospitals in poor rural regions. And research shows that when there are more hospitals in a city, prices are higher, not lower. Hospitals don’t compete on price.

This isn’t how free markets are supposed to work, but this is how our health care market works, because health care is different from all other products.

Why is this? First, because we spend most of our health care dollars when we are chronically ill, suffering from a disease like cancer, diabetes, heart disease etc. That’s where 75% of our health care dollars go. And when people are very sick, we want the best care available, Period. They are not bargain-hunting. If a hospital advertised: “We do heart surgery for less” patients would be very wary. If a doctor let it be known that he would see patients for less, patients would assume that there was something wrong with him– a reason why he had a hard time drawing patients.

Dr. MIKE, you make the point that in our health care market, patients are not spending their own money, and imply that if they were, they would shop around for a bargain.

This is not true. Even when spending their own money (patients with a very high deductible, for instance) people will borrow, beg money from relatives, sell their homes or go into deeply debt to get the best health care they can find for themselves and their loved ones. Only very rarely do you read about a cancer patient refusing radiation because it’s “too expensive and not worth it.” (Sometimes patients refuse radiation because they don’t want to go through the ordeal, particularly if they think they’re going to die fairly soon anyway. But this is different– it’s not about saving money.

Secondly– and this is very important– patients tend to assume that in health care, the most expensive doctor or the most expensive hospital is “the best.” This is why health care providers rarely compete on price. A hospital knows that if it offered lower prices, it would be hurting its reputation as a “premiere” hospital. Patients brag to friends about how much their specialist charges: “It’s a lot, but he’s the best!”

Third– and this is important, health care is very different than other markets because the customer is not in a position to judge how good the product is, or whether it will meet his needs.

Here we get to the heart of the matter. Patients are not scientists. They are not medical researchers. Sometimes, they can tell if a doctor is not very good. (You smell liquor on his breath. His office is dirty. He spills cigarette ashes on you while examining you. This once happened to me and the specialist had been recommended by another doctor!)

But lay people are not in a position to judge whether the
doctor’s diagnosis correct, and whether he is prescribing the right treatment.

Googling does not give you a medical education The only possible exception is when a well-educated patient suffers from a disease for a long time (say, diabetes) reads a lot about it, reads medical journals, and becomes well-informed. But this is the exception. Most Americans do not have a college education, and most importantly, most of the time we are being treated for something that we have never had before, and hope never to have again.

Moreover, as John points out, when you are very sick, time is of the essence. You can’t wait two or three years for the prices on cancer drugs to come down. (This is why the cost of medical technology almost never falls. Competition doesn’t work in this market because the buyer can’t wait for a new seller to come into the market, offering a lower price.) And normally the the patient can’t spend 3 months comparison shopping . .

Basically, you have to trust that the doctor knows what he is doing. This is the one case where the Seller is in the driver’s seat. A doctor or a hospital tells you what you need– a treatment, a test, surgery, whatever– and after asking a few questions the patient normally agrees, even though he can’t be at all certain that what the provider says is true.

Note even the doctor may be far from certain. As Doctor Atul Gawande explains in his brilliant book Complications: A Surgeon’s Notes On An Imperfect Science, medicine is still an infant science, fraught with uncertainty.: “ Medicine is an enterprise of constantly changing knowledge,” Gawande writes, “uncertain information, fallible individuals . . . the core predicament of medicine, its uncertainty, is the thing that makes being a patient so wrenching, being a doctor so difficult, and being part of a society that pays the bills so vexing,”

There are no accessible guides to the “best medicine.” While Consumer Reports can rate midpriced refrigerators briskly and clearly, in a way that makes comparisons easy, it is all but impossible, even for a physician, to be positive of the relative benefits of a great many medical procedures.

(Also, as JOHN points out , the fact that corporations are often making a great deal of money peddling a piece of equipment, a drug, etc. also muddies the waters. When they test their products, they often do not divulge negative results, and so even physicians have no way of knowing that the treatment may hurt many patients.)

Of course, a patient can go to a second doctor for a second opinion. And many do. But if the doctors disagree– whether only slightly, or in major ways– the patient who is not an M.D. has no way of knowing who is right. In a free market, customers are supposed to “set” fair prices by judging the value of the product or service. When it knows to healthcare, the customer just isn’t in a position to do that.

Even after the fact, the patient won’t usually know whether he got the best treatment. If he gets better, he has no way of knowing whether the treatment caused him to heal, or whether his body healed itself. (Time is a great healer, and sometime, people just get better with the passage of time.) Even if the treatment worked, he has no way of knowing whether a less expensive, less invasive treatment would have worked just as well. (A pill or physical therapy rather than surgery.) Finally, if the patient doesn’t get better he usually has no way of knowing whether the doctor or hospital made the wrong diagnosis or recommended the wrong treatment, or whether he simply couldn’t be cured. Every human body is unique, and reacts differently to treatments. What worked for your brother-in-law may not work for you.

As Kenneth Arrow, the Nobel Laureate economist who is considered the father of health care economics pointed out long ago, free market competition does not work in health care because the consumer doesn’t have the knowledge needed to judge which advice or treatment is “best.”
“Uncertainty as to the quality of the product is perhaps more intense than in any other market,” Arrow wrote. “Recovery from disease is as unpredictable as its incidence . . . and further there is a special quality to t he uncertainty: it is very different on each side of the equation. The information possessed by the physician as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient, or at least so it i believed by both parties.

This is why, ultimately, the patient must trust the doctor that he is giving the best advice possible. And, in fact, the vast majority of the time, doctors are giving what they truly believe to be the best advice.

But not all doctors are equal: as Gawande points out, doctors, like everyone else, live on a bell curve. In the middle, we find most doctors who are “pretty good”– at the far left, very poor doctors, and at the far right, excellent doctors. Although a layman may be able to spot the poor doctor, he is rarely in a position to distinguish between the “middling” doctor and the excellent physician. This, of course, often is not true. (Ask nurses, who know more than anyone else about which docotors in their hospitals are
mediocre, poor or outstanding.But nurses rarely talk, except to close family members.)

The same holds true for hospitals. As a hospital CEO once told me: “Our patients know whether they like the food, the views– whether the nurses are friendly. They have no idea whether they’re getting the right treatments, the right medications . .
Under reform, we will have more information about hospital- acquired infections and error rates– and we will discover that some of the most expensive brand-name hospitals are in fact, very dangerous places. (In New York State, we have collected quite a bit of information, and some of it is shocking.)

And under reform, Medicare will be trying to pay hospitals and doctors more for “better outcomes.” But it still will be all but impossible to judge the quality of individual doctors–and whether they are “pretty good” or outstanding because the pool of patients that a doctor sees is just too small. A handful of non-compliant or very sick patients can skew his outcomes. By contrast, it is much easier to judge the quality of a large group of providers by looking at outcomes.When a hospital or an accountable care organizations sees thousands of patients, the outlier patients are averaged into the large pool, and don’t’ make such a difference.

Finally, on Insurers: Dr. MIKE suggests that insurers have too much power, and that if we had a true free market, the government (or someone) would bring anti-trust suits against them. But in fact, while insurers have great power in some parts of the country, in other places, hospitals that have consolidated have disproportionate power and are able to charge insurers and others exorbitant prices for simple services. (In Massachusetts, the Attorney General is looking into cases of Marquee hospitals that have been gouging insurers who feel they must have them in their networks (because they are brand-name hospitals) even though they are no better at providing simple services )

And Dr. MIKE, I’m afraid that you are simply mistaken in thinking that reform has strengthened the insurers position. Insurers will be forced to cover the “essential services” that many today do not cover. They will not be allowed to charge patients more (or turn them down altogether) if they are suffering form pre-existing conditions. They will have to spend 85%of the premiums they collect on medical care, keeping only 15% to cover their own expenses and profits. If they don’t spend 85% they will have to refund money to their customers– which they are already doing.

That means that fat profit margins become impossible: even if you raise premiums, you can keep only 15% of the increase.

Not long ago, the CEO of Aetna said that the health insurance business will soon be extinct. The business model no longer works. Insurers will have to partner with providers, and work with them to keep patients healthy.

May 30, 2012

After all the partisan bickering, and half baked compromises, and bumbling attempts to involve the “free market”, and the bending and twisting to include the insurance industry in the final solution, and not to mention the U.S Supreme Court ‘s pontification with it’s politically determined law “making”….. and the whole ugly Rube Goldburg contraption tumbles down and collapses of its own weight and expense………THEN, and not before then will we settle down to a real-world, practical solution…….A SINGLE PAYER HEALTH CARE DELIVERY SYSTEM. A system run with heavy input from those in the medical community who are willing to sacrifice some of their glittering specialty lifestyles and by the diagnostic and treating community for the benefit of ALL Americans.

May 30, 2012

Yeah. I see a much grimmer future for us. We will choose to remain in denial until it all comes tumbling down.

Barry Carol
May 30, 2012

Maggie –

Regarding age rating, for every 55-64 year old person that fell on hard times, got laid off, saw his 401-K decline in value or was unable to save as much for retirement as he hoped, there is probably at least one young person who graduated from college with substantial school loans, couldn’t find a job, even at an entry level salary, in the field he or she trained for and was forced to move back in with parents or other relatives. They may be doing low wage work that doesn’t require a degree while searching for that foot in the door that will get them on a career track. They can’t afford to subsidize older people especially if they are older than 26 and no longer qualify to remain on their parents’ insurance policy assuming the parents have one. We can’t get blood out of that stone either.

If we’re going to subsidize people who make too much to qualify for Medicaid, I think it would be better to peg the subsidies to the cost of the least expensive comprehensive insurance policy in each regional or local market and require people to spend at least 10% of income in excess of the FPL level before the subsidy kicks in and then only after rigorous income verification and with stiff penalties for hiding or underreporting income.

At the same time, an interesting but complex and tricky issue is how the value of employer provided health insurance is allocated to individual employees if the tax preference were eventually eliminated and offset by lower marginal income tax rates and / or a higher standard deduction? While the self-insured employer may set the employee contribution toward the premium on a community rated basis, the quantification of the employer contribution for income tax purposes should probably be age rated.

In Massachusetts, Harvard-Pilgrim age rates each insured person with an assigned score of between 0.4 and 2.4. To comply with MA’s 2 to 1 maximum age band, though, for premium setting purposes, no individual can be rated less than 0.66 no matter how young or more than 1.32 no matter how old. The 0.4 to 2.4 pure age rating range reflects the fact that the oldest in the group consume 6 times more healthcare on average than the youngest.

With respect to the concept of a free market in healthcare, I think it would be enormously helpful if actual insurance contract reimbursement rates were easily ascertainable by both patients and referring doctors. Lots of care is scheduled well in advance and whether routine or not, if referring doctors knew the contract rates, especially for hospital based care, it would be much easier for them to ensure that patients received appropriate and necessary care from the most cost-effective high quality providers. Just because patients wrongly think that more care is better care and more expensive care is better care doesn’t mean we should have to pay for it. Part of the idea behind tiered insurance networks is to at least require patients to pay more out of pocket if they insist on going to the high cost hospital or specialist for care that virtually every provider can perform perfectly well.

Care that needs to be delivered quickly under emergency conditions is a separate issue but it’s not a large percentage of overall healthcare costs.