Healthcare Reform - Age Tax on Healthcare Premiums?
I was listening to the news on the radio and heard a commercial from the AARP about proposed repeal and replace changes in the American Health Care Act that will allow health insurers to charge older Americans up to 5 times more than younger Americans for health insurance. The bill is referred to as the State Age Rating Flexibility Act of 2017. In the words of the AARP, this is an unfair age tax. I do not want to misrepresent the position of the AARP, an organization that helps millions of Americans so you can read the article yourself here: Age Tax is Unfair and Unaffordable. You can become an AARP member at age 50 and you get Medicare at age 65 so the group the AARP is concerned about is 50-64 year old folks. I do have an axe to grind in this discussion. As a matter of full disclosure I am 59 years old. I am in the crosshairs of this proposed legislation.
At first glance, it seems patently unfair. However, this is a much more complicated issue. Unless there comes a time where we no longer buy insurance coverage to help pay for health care expenses, this issue will remain. Saving the arguments, pro and con, on nationalized health care for another day, the question is whether charging 50-64 year olds up to five times more for health insurance than younger folks is unfair. Insurance companies are in the business of evaluating risk and pricing that risk appropriately. You see that in the other insurance products that you buy. Good drivers pay less than bad drivers, sometimes two or three times less. You get substantial discounts for having things like alarm systems, reinforced roofs and the like on your homeowners insurance. Does that seem fair? Just because I have four tickets and someone else has zero should I pay more for car insurance? Maybe they drive faster than me but have gotten lucky and I have not. Maybe my increased car insurance is an unfair tax.
My blogs are about taking topics of the day and applying the data to the topic and this is no exception. I looked at three categories of people. The first group is young adults aged 20-24. The second group, my cohort, is the young at heart adults aged 55-59. The final group is the pre-Medicare group aged 60-64. My data suggests that the 20-24 group has average annual medical expenses of about $200 a month. As my prior blogs suggest, about 5% of the people make up the majority of spending so most 20-24 year olds do not spend anywhere near that but when you throw them all together and average it out that is the number. The 55-59 year olds, my group, spends about $700 a month which is a 3 1/2 times more. The 60-64 year olds spend about $900 a month or 4 1/2 times what a 20-24 year old spends. So inserting myself into this equation the question is this. Is it fair for a health insurance company to charge a 59 year old like me 3 1/2 times more than they charge a 22 year old when people my age spend 3 1/2 times as much on healthcare? As a 59 year old, I might say heck no!
If you think it is unfair then you have to find the money (see blog from January 19...There is No Tooth Fairy). The truth is that if there is a limit on what you can charge someone my age, you must charge younger people more...far more in some cases than the risk that they impose to the insurance pool. It is tough when older people have to pay more for insurance and in isolation I can say that it is unfair. However, when the solution is to make younger people pay more than they should in order to subsidize people like me one might argue that it is more unfair. Younger people are just getting started in their careers and are more likely to be struggling to make ends meet. There is no right answer here. I would be most interested in what younger people think, but the question is should younger people subsidize the health insurance of pre-Medicare older people, knowing that they will be older one day and ultimately receive that subsidy themselves. Let me know what you think.
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