OP-ED

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 HealthReformVotes.org, a special project of the Health Insurance Resource Center.

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Marla B. Levie
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Thank you for your article. I found this interesting.

-Marla B. Levie, President Focus on Aging http://www.focusonaging.com

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Maggie Mahar
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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… Read more »

Maggie Mahar
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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

Tiffany
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Tiffany

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:… Read more »

Keith G. Ryan DC
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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.

Brandy
Guest

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.

Maggie Mahar
Guest

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… Read more »

Barry Carol
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Barry Carol

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,… Read more »

bob hertz
Guest

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… Read more »

Maggie Mahar
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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… Read more »

Barry Carol
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Barry Carol

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

Barry Carol
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Barry Carol

Maggie – I agree that the cost of health insurance in 2014 is very difficult to predict for all the reasons you mentioned. My concern relates to the consequences of being wrong. If healthcare costs are higher than our experts estimated or if many more people apply for and qualify for subsidies than we thought and the cost to taxpayers is far higher than we thought what then? Will we be prepared to scale back the subsidies, sharply increase deductibles or otherwise reduce the scope of coverage or find more coercive ways to reduce the cost of care? I think… Read more »