Balancing the Health Insurance Budget on the Backs of Younger Workers

For the last two months I have been hammering away at what I call the “actuarial insanity” of the health insurance reform measures put forward in both houses of Congress. Now that the House version of health insurance reform has passed, the insanity is on full display.

The House measure throws actuarial reality out the window by evening out the cost of premiums paid by younger workers and those approaching retirement (those at retirement age are already covered by Medicare). The legislation passed by the House mandates that people over 50 cannot pay more than twice as much for health care insurance as those under 50 do—this despite the fact that the over-50 crowd utilizes the health care system far more than their children and grandchildren do.

For example, people aged 60 to 64 consume 4 to 5 times as much health care as people in their 20s and 30s do. Under the current, actuarially based pricing of private health insurance, those in their 60s pay health insurance premiums that are 4 to 5 times higher than those of paid by people under 40. The House plan bans this practice, creating a massive shortfall in premiums. To recoup those lost funds, the new law increases the premiums of the younger people by as much as $1,100 a year until retirement. That might not seem so bad if you are 39, but if you just entering the workforce at age 18, it amounts to more than $50,000 over the course of your working life.

To put it another way, the natural benefit of health and vitality that younger adults enjoy will not translate into substantially lower health insurance premiums, as they do with private insurance.

The leaders of the nation’s largest membership organization, AARP (American Association of Retired People) see no problem with balancing the budget of health insurance reform on the backs of their children and grandchildren. The 40-million member organization supports shifting the costs of health care to the young—a strange stance for an organization that has as its motto, “To serve, not to be served.”

Nor is this the only government program that forces the young to pay for the old. Medicare—the federal government’s health insurance program for Americans aged 65 and above—and Social Security are funded through a 7.65% (15.3% if self-employed) Federal Insurance Contributions Act (FICA) payroll taxes paid by those in the workforce.

Both of these programs were presented to the public as forms of insurance, that is, paid for by the insured themselves over the course of their careers. This is not the case. By increasing benefits without correcting for actuarial reality, both Medicare and Social Security pay out far more than they take in from each individual. Younger and middle-aged workers underwrite the retirement of their elders.

Even so, within a decade both Social Security and Medicare will stop taking in as much money as they pay out, creating deficits.

The actuarial insanity of the House of Representatives’ health insurance mandates would not be quite as threatening to the young if they could opt out of the program. Supporters of health insurance “reform” know their scheme will never work without the financial contributions of younger workers, so the new law calls for stiff fines and even imprisonment for those who fail to obtain health insurance. It all strikes me as a strange way of bringing “fairness” to health insurance.