Health Insurance Premiums And Age

How much should age play a part in determining health insurance premiums?  That’s a question that lawmakers are debating, and one that might require an answer that is more strategic than it is fair.  In general, older people have higher health care bills than younger people.  Because of their lower claims, younger people currently pay much lower premiums for health insurance than older people.  But they continue to be the most uninsured segment of our population.

In 2007, the Lewin Group released a report for the Colorado Blue Ribbon Commission for Health Reform.  It showed that 38.7% of Colorado residents age 19 – 24 were uninsured.  This was far more than the next highest category (27.1% of people age 25 – 34 were uninsured).  Several factors contribute to the high percentage of young people who are uninsured.  They tend to be healthy, and thus aren’t as likely to see the value in health insurance.  They tend to work in entry-level jobs that aren’t as likely to provide health insurance benefits.  And they usually have lower incomes than older workers, making health insurance – even if it is cheaper for them – harder to afford.

Various committees in congress have proposed reforms that limit premiums for older Americans to two, three, or four times the cost of premiums for younger people.  One way or another, health insurance companies have to take in enough in premiums to cover the cost of claims for the entire insured population.  If the amount that can be charged for older insureds is limited to twice the cost of premiums for younger people, it makes sense that premiums for younger people will rise substantially above where they are now.  Given the large number of uninsured young people – many of whom cite cost as a major factor in their lack of coverage – it seems that dramatic increases in premiums for this demographic will be counterproductive.  Especially if the mandate requiring everyone to have health insurance remains weak.

In order for the health insurance system to function well, and really spread risk across the whole population, we need to make sure that young, healthy people are insured.  And to do that, we have to make sure that premiums are affordable for them.  People who are sick, and people who are older and more likely to have chronic health conditions, already see the value in health insurance, and will work to fit it into their budget.  Young, healthy people might not have as much motivation to budget for health insurance.  And if the premiums skyrocket, they will be even less likely to obtain coverage.  We need to work on long-term solutions for lowering health care costs for everyone.  But in the beginning, we need to make sure that young, healthy individuals aren’t facing health insurance premiums that are dramatically higher than the current premiums that they struggle to afford.

Comments

  1. Don Levit says:

    While health insurance is certainly helpful in defraying costs, it can also be hazardous to one’s health.
    Hazardous in that if the goal of health insurance is to cover the costs, even if those costs are higher than the “market can bear,” then health insurance is more destructive than constructive.
    In addition, health insurance is hazardous in that premiums are pay-as-you-go, when we know that age is correlated to claims, exponentially as we age past 40.
    Incomes typically do not grow exponentially, as they typically just keep pace with inflation.
    Don Levit

  2. Don, you make good points. The spiraling cost of health care is an issue that has to be addressed, and seems to be one of the most difficult parts of the reform efforts.
    As far as premiums and incomes both increasing with age, what I was getting at was the relative ability and willingness of older workers to pay more for health insurance than younger workers. A 50 year old employee is much less likely to be in a low-paying, entry level job than a 22 year old employee at the same company. Senior level, higher paying jobs tend to come with time, and are rarely available to young workers. This is different from basic cost of living raises that go along with staying in the same position for years at a time (and as you mentioned, really just keep pace with inflation). Obviously not all workers get promotions, but in general, older workers tend tend to earn more than younger workers, simply because of experience. Coupled with possible health conditions that tend to creep in with age, older workers are not only earning more than younger workers, but they are also more acutely aware of the need for health insurance, and less likely than younger workers to choose to spend their money on something else and go uninsured.

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