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Health Care Pools: Let Youth Jump, Or Push Them?

The rules for how health insurers use age to set premium rates vary widely from state to state. Some states require insurers to charge all residents – young and old – the same price.

But in many states, anything goes. Insurers can charge older people five, six or even 10 times more for health insurance than younger adults.

In trying to draft new national standards, the key congressional committees agree that older people should pay more. But they differ widely on just how much more.

The Pool-Party Analogy

So, imagine you’re at a pool party. It’s a mix of people in the neighborhood: some older folks, some middle-aged, new parents with screaming babies, new college grads. They’re all standing around in their bathing suits – itsy-bitsy and the not-so-itsy-bitsy.

For health insurance to work best, all of those people need to get in the pool.

Of course, the older folks jump in first. They’ve got more health problems and really need the insurance. Then, the middle-aged people and parents with young kids jump in. But the younger ones? The ones who are rocking the itsy-bitsy bikinis and board shorts? How do you get them to jump in, especially when the water looks really cold?

That is exactly the problem Congress is trying to figure out.

“There’s no magic involved in how you set premiums,” says Larry Levitt, vice president of the Kaiser Family Foundation. (KHN is a program of the foundation.)

He says the 20-somethings need to be in the pool because they help balance out the cost of insuring older people who use more medical care.

“You’re still going to have to raise enough money for premiums to pay for the health care services that people use,” he says.

The Debate Over Premiums

And just how do you raise premiums? Should younger people pay less while older people pay more? Or should we share the costs, since we’ll all be old some day?

The bill passed by the Senate Finance Committee would allow insurers to charge older adults four times the amount it charges younger people.

The House bill and the Senate health committee bill make a different choice: They would limit what insurers can charge older adults to two times the amount.

The insurance industry strongly prefers the higher 4-to-1 multiple.

Alissa Fox, senior vice president of the Blue Cross Blue Shield Association, says the fear is that if you make insurance too expensive for younger adults, they won’t buy it.

“It’s very important to have significant discounts for younger people so they purchase insurance,” Fox says.

What About The 55- to 64-Year-Olds?

But the insurance industry is leaving out a critical element, says Linda Blumberg, a researcher at the Urban Institute. She says the current health overhaul bills all provide subsidies for lower income Americans, and “the young adults tend to be lower income, so they really are buffered a great deal from the full impact.”

Blumberg is worried more about middle-income older Americans – those between 55 and 64 years old. Discounts for younger people mean “surcharges” for older ones – and those older adults are less likely to qualify for a government subsidy.

“More than half of individuals in that 55- to 64-year-old age group with incomes between 400 and 500 percent of the federal poverty level would have household health care financing burdens of 20 percent,” she says.

What Blumberg’s saying is that my mom – before she retired – would have ended up spending 20 percent of her income to buy health insurance. And because she earned too much to qualify for a government subsidy, she would be – as she says – “up a creek.”

Fox says to handle that problem, Congress should give special subsidies to older, middle-income people. But Congress is already apoplectic about the cost of overhauling the health care system, and according to several sources, has little appetite for giving subsidies to people who seem to make a pretty good living – around $54,000 a year.

Individualism Vs. Social Solidarity

There are other ways of getting young people in the pool. You can push them by making the penalties for going uninsured more expensive than a basic plan. The current bills do include penalties, but many economists and the insurance industry claim they’re not high enough to be effective.

You can also require employers to provide health insurance, since the majority of uninsured young people are working. The bills differ on how strongly they do this.

However Congress decides the issue, they could look to other countries that have both universal health care and a private insurance industry. None of them, including Germany and the Netherlands, use age or any other personal characteristic to set premiums.

In the end, this seemingly technical choice of where to set age rates may come down to America’s unique belief in individualism versus the principal of social solidarity.


Related KHN stories:

Health Insurance: How Much More Should Older People Pay?

People Who Choose Not To Have Health Insurance

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