The Age Rating Game
Maggie Mahar Health Care Blog discusses some of the rhetoric employed in media on how to pay for health insurance.
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.
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.
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.
In the early stages of obamacare it is inevitable that younger workers will pay more.
We are beefing up coverage requirements before adding many people to the insurance pool, and the young and healthy will pay more, as will most.
Employers are being billed more, and most will pass on the increases to workers through higher deductibles and co-pays.
The Obama administration knew this, but sees it as a transition cost (birthing pain) more than a permanent problem.
Which is when the MLR comes into play and corrects much of the overcharges the younger generation suffers. I know I will not see a rebate in 2013 due to the $100,000+ hospitalization, surgeon, and doctor bills in 2012; but, many others will get those rebates.
In which case (if all goes according to plan), the lowest cost insuree should see rates average out and to reality in the following years with all others calculated off of them. Of course insurance companies base their rates from expected risk, increase the premiums accordingly, invest in the stock market to fund the plans, and return the premiums sans the gains achieved returns. What better way to improve your take in the short term?
This is all nonsense.
The point is not to arrive at some cosmic justice across the generations.
The point is to pay for your own health care needs in the most “efficient” way you (we) can think of.
Since “the young” are going to become “the old”, the sanest thing they can do is find a way to pay for their eventual high costs by paying a little at a time while their costs are low but their incomes are high.
That is Medicare.
Making the Boomers pay more for their costs now that they are old and retired with low incomes, “because they had the first chance at the best jobs” is the kind or moral insanity that ultimately leads to self destruction.
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A Mahar-referenced graphic here http://www.advisorperspectives.com/dshort/updates/Household-Incomes-by-Age-Brackets.php shows the median income for each age group for each year. Out of curiosity, I eyeballed data points for people who, in 2011, were in the 55-64 group (born 1947-1956, all baby boomer years). Their median incomes were about $56,000 in 2011, down from $74,000 in 2001 when they were aged 45-54. The $18,000 drop is large. Looking at the earliest data in the graphic, people who were 55-64 in 1977 had a median income of about $49,000 compared to about $54,000 a decade earlier at age 45-54–a drop of only about $5,000. Looking more closely, the drop has been getting larger over time, even before the Great Recession. Why is that?
I can’t help but wonder if my $10K deductable for which I received a letter last month telling me it was reduced by 20% do to not using my insurance is part of the planned MLR? If the family is good for the next for 4 yrs the deductable will be ultimately cut in half.
Clever, they give no cash back, it looks like I’m getting a better plan when I’m actually prefunding my losses via a private free market approach.
Sure wish we could all just take advantage of the magic of pooling risk and all get in the one big pool.
As to reduced income by 1977, the connection between productivity and wages was broken by 1974. Also, is it possible that death moves the median as a cohort moves through the decades? Not that I’m saying it the prime answer.