I’m now part of a Washington Post panel responding to a health-care reform question each week. Click here to find the panel.
This week’s question: “Is the Individual Mandate Necessary?”
Let me add that while I think we need an individual mandate, I am concerned that the House version of health care reform lets insurers charge older customers twice as much as younger customers. At this point, the Senate Finance Committee also allows insurers to discriminate by age. This could make it very hard for 50-somethings who don’t qualify for subsidies to afford a family plan. Under the House bill, a couple with joint income of $75,000, before taxes, would not receive a subsidy. And if they are self-employed, and receive no help from an employer, the premiums that they would be expected to pay could easily run as high as $13,000 a year. After taxes, if they live in a high-tax state, they might take home $65,000 a year—or less. This means that health care premiums would eat 20 percent of their income—or more.
I don’t think it makes sense to suggest that a young couple, earning $150,000, jointly, shouldn’t pool their resources with a 50-something couple earning $75,000. Don’t younger Americans want to help pay for the health insurance that their parents need? These days, as more 50-somethings become unemployed, it’s not that unusual for college-educated 20-somethings and 30-somethings living in two-income households to earn significantly more than their middle-class parents.
Both Social Security and Medicare ask all Americans to pay the same percentage of their paychecks into the system, regardless of age. When they grow older, younger taxpayers will benefit from a system that expects all of us to pull together. Universal health care should follow the same model: everyone in, no one out of the pool.
This is the problem of making people buy insurance. Why can’t they just tax us and give us a minimum plan?
A few years ago the TIAA-CREF retirement plan got criticized by women participants because their annuity payments were lower than those for men.
Eventually TIAA removed gender from the calculation which means in actuarial terms that the women are now getting more than men since they live longer on average.
The women viewed it as a fairness issue, not an economic one. All of which gets back to my current hobby horse that economic policies need to be based upon ethical concerns, not the bottom line.
It seems to me that it is more “fair” for everyone to pay the same rate for health insurance. This changes the basis from an economic benefit to a social right.
We have plenty of precedents, besides those mentioned above. For example we don’t charge parents more to educate their special needs children. We don’t charge them either if the bus ride is longer for their kids. Education is regarded as a basic right so funding is automatically treated as needing to be fair.
yeah..i agree with you steve.
My answers to the two questions posed in the title of this post are yes and yes.
If we want to mandate that health insurers be required to issue policies regardless of pre-existing conditions or general health status, than there must also be a mandate to purchase insurance with allowances for exemptions due to financial hardship. The two go together. It’s as simple as that.
With respect to whether or not younger people should pay less, I think they should which is the way the market works in Massachusetts. In that state, older people can be charged up to twice as much as younger people.
It’s a basic principle of insurance that policies be priced to reflect the actuarial risk assumed plus an allowance for administration and profit. We charge young people more for car insurance, not because they are reckless, though some are, but because they are inexperienced drivers and therefore have more accidents. We charge older people more for life insurance because they have fewer years of life expectancy remaining before the insurer would be required to pay out the face amount of the policy. What makes health insurance a more complicated issue in this context is its high cost. If the cost were less than $1,000 per year, as it is to insure a typical car, it would not be a controversial topic.
If we were to pay for health insurance with a payroll tax instead of insurance premiums, the tax rate would most likely have to be in the 15% range which is onerous and unfair on several counts. First, if it only applied to wages, people who earn much of their income from interest, dividends, capital gains, rent and other non-wage sources would be unfairly advantaged. This could be addressed through a process that tax policy types call integration of the payroll and income tax which I won’t go into here. Young people already pay 15.3% of salary in Social Security and Medicare taxes, including the employer’s matching share. Social Security taxes apply to the first $102,800 of wages for 2009 while the Medicare tax applies to all wages. Yet, they won’t realize any benefits from those programs for decades to come. At least, one could argue that Social Security is really a guaranteed government pension program financed by a mandatory contribution with benefits a direct function of taxable wages earned and the number of years worked. There is also a disability insurance component. To layer on a 15% payroll tax to pay for healthcare, which the young, as a group, will use very little of compared to the 50-64 population is going too far, in my opinion. Moreover, the very large number of people who are in business for themselves, work at least partly for tips, or otherwise receive work related income that does not show up on a W-2 form will have even more incentive to hide or underreport their income than they do now. The bottom line is that there are no easy or completely fair solutions to health insurance and healthcare financing.
Barry–
(Everyone else–I’ll be back to respond to other comments.)
Barry: You write: “With respect to whether or not younger people should pay less, I think they should which is the way the market works in Massachusetts. In that state, older people can be charged up to twice as much as younger people.”
In fact, “the market DOESN’T work in Massachusetts.”
Many people cannot afford insurance, and the state cannot afford to subsidize them, so it excuses them from the program.
The parallels to auto insurance etc. are faulty because some people never have a car accident. (My husband, who has been driving in NYC since he was 18 has never been in even a minor accident. And he drives like a taxi cab driver–but can judge distances very accurately, and has excellent reflexes.
Occasionally, I close my eyes.)
All of us however, will need medical care at some point in our lives, and most of us will need quite a bit of care during our last two years of life.
Moreover, while someone who has numerous car accidents might be blamed for being a reckless driver, no one can be blamed for becoming sick and dying. No matter how much you exercise, how carefully you eat, etc.,
good habits and preventive medicine will not save you from most cancers, Alzheimers, Parkinson’s, other forms of senile dementia, blindness, loss of hearing, deterioration of joints over time, etc.
This is why we should all pool our money to pay for health care.
Finally, if older people have to pay twice as much,
a 55-year-old couple earning $70,000 a year, jointlyl, will not qualify for a subsidy, but will face health premiums as high as $16,000 a year.
Meanwhile a 29-year-old attorney and his wife (also an attorney) earning $300,000 would pay as little as $8,000 or $9000
This means that the older couple cannot afford insurance–at a time in thier lives when they most need health care.
This is not fair.
We need to begin to think collectively, and as President Obama says, realize that we need to take care of each other.
Maggie is absolutely right. Establishing segregated risk pools based on factors such as age may be a good deal for low risk sectors, but covering average costs for everyone (universal risk pooling) is no longer affordable for average-income households, much less for those in higher-cost risk pools.
Uwe Reinhardt and others have made it clear that, if we want everyone to be covered, a transfer from higher income individuals is an absolute necessity, whether that is through a social insurance program using private plans or through a single public insurance program.
That could be accomplished more efficiently and more equitably through the tax system, but tax subsidies could work as well. The problem is that the subsidy should be based not only on income, but also on the balance of the premium assigned to the individual (assuming segregated pools with variable premiums) plus the out-of-pocket costs that the individual must pay. But post-loss determination of subsidies would create an administrative boondoggle. Nevertheless, the concept is very important because the basic tier coverage being proposed results in underinsurance for those with high health care costs (since stop loss is a fiction with today’s restricted provider list plans).
Whether or not we continue to rely on private plans for health care financing, Congress really should be considering a universal risk pool financed through the tax system. Then the question of an individual mandate would become moot.
If we had a single payer universal system, we would pay for it through a graduated tax, most likely, and not according to one’s age or medical status. Thus the amount of money one makes/has should be the factor that decides any “premium difference” and not other things, IMO. You all likely really know this down deep, but for some reason in this country we just cannot abandon the old ways that failed. Maybe like Churchill suggested this silly process is just an evolutionary one in America to the right thing.
I don’t mind paying for MY parents’ healthcare. I’ll even help some of my friends out. But I have issues paying for people I don’t know and can’t assess their prior decision-making.
Its quite unfortunate that this situation is called “insurance”, because as you point out Maggie, its not insurance, and *everyone* WILL have to use healthcare at some point in time. I may never use my auto, home, umbrella, or professional insurance. Calling it insurance, and shifting the discussion to that over the past 10+ years, has been a great PR move.
Personally, I think each individual should pay for his/her own consumption, and should save for the possibility that they might have to consume more later on in life. But then, I get called bad names for thinking that way. I don’t expect we’ll have that happen.
So, ideally, if participation is forced, a payment into some program could consist of:
1) some baseline amount to cover the probability of the occurrence of unpreventable “cancers, Alzheimers, Parkinson’s, other forms of senile dementia, blindness, loss of hearing, deterioration of joints over time, etc”
and
2) additional surcharges for poor health decisions, such as eating poorly, not exercising, smoking, high BMI, other evidence of risky behavior, etc.
and for the sake of delivering a jab, who said anything about fair? what’s fair about taking one individual’s resources (on threat of imprisonment) to give it to someone’s pet project?
Matt —
You must have missed our extensive discussions of this, but it turns out that those people with “poor health decisions” actually cost less, not more, to take care of over their whole lives. This is because it turns out that because they die earlier, they do not run into as much of the costs of aging related illnesses that you mention.
If you wanted additional surcharges for lifetime care, it would be the people with good health habits who would have to pay if you based the charges on actual lifetime costs.
“If we were to pay for health insurance with a payroll tax instead of insurance premiums, the tax rate would most likely have to be in the 15% range…”
That from a previous comment needs attention. Working people already DO pay such a tax in the form of Social Security and Medicare deductions. (The employers “matching contribution” is in reality part of an individual’s real compensation because without the employee that money would not exist. Calling it an employer’s contribution is simply a smoke and mirrors way to make what is in reality a fifteen percent TOTALLY REGRESSIVE tax seem less than it actually is.)
And before I go on, yes, that tax IS in part for health care inasmuch as Medicare part B WILL be deducted from the already modest amount awarded in retirement to Social Security beneficiaries.
As for your two questions? Yes and Yes.
Young people will not always be young but they will never have a better chance to advance their stations in life to contribute more to themselves and the community in their various futures. I see lower premiums for young people as investments in the future, something like forgiving school loan balances after ten years if the borrower has been faithful to the ten-percent of earnings repayment schedule for 120 consecutive months.
There are other places to get money and lots of it.
For starters, most people have no clue that the top ONE PERCENT OF THE POPULATION controls something between A FIFTH TO A THIRD OF ALL THE WEALTH OF THE COUNTRY.
I didn’t believe it when I came across that little factoid. The reader is urged to look it up and come tell me how wrong it is. So when Obama talks about raising taxes on those with family incomes exceeding a quarter million a year, don’t expect to see my eyes glistening as they form tears.
Also, the best-kept secret in the working world is the cap on Social Security taxation. I don’t know what it is currently, but I paid the max into the system for over twenty years, and I was keenly aware toward the end of each of those years that I was getting a great bonus just in time for the holidays when those around me had no idea that such a situation even existed. (And no, I didn’t mention it. That would have made my job managing the working poor even more challenging than it already was.)
And finally, by what stupid reasoning did the medical deduction for those itemizing income taxes get bumped to nine percent or whatever insane percentage it now is?
Somewhere in this conversation someone needs to start yelling that the income tax deductions for health care expenses, including insurance premiums, needs to be put back into a reachable range to encourage more people to start contributing to their care instead of expecting their employer or someone else to carry the freight.
If you want to know where the marketplace is going with health care look at people’s teeth. There is a population of people who have beautiful teeth, even if they have to have implants, caps, root canals and cosmetic adjustments. Then there are those who have baseline dental care that leads to dentures as the years go by. And there are lots of people whose dental care consists of enduring the pain of rotting teeth until the pain gets so bad they find a cheap dentist to have painful teeth extracted one at a time if they don’t come out on their own.
I watched helplessly for nearly thirty years as several of my staff lost their teeth, sometimes going without teeth for as long as a year or two until they could get a cheap lab to craft a set of dentures for two or three hundred dollars.
Their health care was not any better. I won’t go into details, but I have seen enough of the dark underbelly of the world’s best healthcare system to make me want to hurl when I hear that phrase used seriously in a sentence.
==================
It does me good, by the way, to see a comment thread that is having a serious conversation about redistributing wealth to cover the cost of universal health care. There was a time, not long ago, when the mention of the phrase “redistributing wealth” would have triggered a rash of ballistic responses.
Matt, NG, Don,
Let’s say you and your spouse and children died tomorrow in an auto accident.
Then, if everyone thought the way you do, there would be no one willing to help your parents.
Griefstricken at having lost his son, daughter-in-law and grandchildren, your father begins drinking heavily.
Do you really think he should be charged more for health insurance?
What you call “bad behaviors” are closely associated with depression, severe anxiety and mental illness.
The vast majority of adults who smoke in this country also suffer from mental illness.
Finally,”bad behaviors”are closely correlated with poverty which is very stressful, leads to mental illness and self-medication.
Do you really think people should be punished for bad luck–of being born into the wrong family in a country that tolerates levels of poverty not tolerated in the rest of the developed world?
(Other developed countires have social safety nets that protect people from falling into the level of poverty that we see here– homelessness, living in sub-sub standard housing, very poor public schools in inner citiets, no medical care, no safe parks in ghetto neighborhoods where people can exercise, no affordable, good day-care . .
Social Mobility (the ability to move out of poverty over the course of a lifetime) is now lower in the U.S. than it was 40 years ago. See http://www.futureofchildren.org/information2826/information_show.htm?doc_id=389282.
In fact, social mobility is greater in many Western Europe countires than in the U.S.
Once you are born into a poor family in the U.S. you are likely to receive a very poor education in a ghetto or very poor rural public school, narrowing your chances of moving forward.
You also are likely to develop health problems as a child–respiratory diseases (poor air quality in ghettos), poor health associated with poor diet, stress, etc.
NG– People who have good employer-sponosred insurance don’t want to give it up for an unknown.
Moreover- aside from the fact that it isn’t practical to try to move 85% of the nation out of the employer-sponosred insurance that they have now– what if Jed Bush becomes president.
Or one of GWB’s twins?
Right now, many people trust President Obama. But he will not always be president.
In the past we have elected bad governments–and will probably do so again.
Wouldn’t you want an alternative to government-run insurance? Think of what happened to the UK’s National Health Service under Thatcher.
Don–
Thanks for the comment.
First, I would like to see everyone receive insurance of equal value. (See Zeke Emanuel’s plan in “Healthcare Guarnateed”
I do not favor a menu of plans “to fit every pocketbook”–some with less comprehensive benefits and lower premiums.
The public sector option should attract a large people of people at different income levels– self-employed people now buying their own insurance,
low-income people who are now uninsured, middle-class people who work for small companies, etc.
Subsidies should make this insurance affordable for everyone.
note to hootsbuddy:
simultaneously talking about medicare, social security and income redistribution resembles three-card monte.
income redistribution’s fine with me. we do a bit of it now and perhaps we should do a bit more, tho number on things like estate taxes and capital gains suggests modest support.
social security is keyed to income and both contributions (as you noted) and benefits (as you didn’t) are capped. it includes redistribution so poor folks get a better return than richer ones do. as long as social security is seen as a discrete system, as is now the case, it would be extremely hard to uncap contribution limits without letting benefits for those at top rise also.
medicare was once capped at the same level as social security. now it isn’t, which means that top earners pay more in medicare than social security taxes and are paying much more for insurance than it would cost on the open market. then we have the part b premium, which also rises with income. so people are paying very different prices for the same product.
if you reconfigured the system, an improbable outcome, that simply had people pay income taxes in and get needed benefits out, that would be a very different environment. but as long as ss and medicare are tied to specific taxes people not surprisingly expect to get value for their payments.
Maggie wrote:
“In the past we have elected bad governments–and will probably do so again.
Wouldn’t you want an alternative to government-run insurance? Think of what happened to the UK’s National Health Service under Thatcher.”
———-
If we can agree that over time we cannot have a sustainable, universal system without some kind of comparative effectiveness payment preference being used to weed out the useless from the effective, then I am not sure it much matters who pays the resultant bills for the effective care only. Why not use the most efficient process, which is probably a government run single payer plan. Now if you are saying above that bad elections will tamper with the comparative effectiveness payment scheme, that is another thing all together, and one which an alternative private payment mechanism will not likely be able of overcome in any good way.
So please tie together how you see these two processes interacting? No matter how many payers we have, how will they interact with the comparative effectiveness part of any reform? Will every payer have to have their own comparative effectiveness board, or will there be one government sponsored entity? Again, if the latter, then does it really matter how many payer entities we have?
jim jaffe,
Appreciate your comments. Don’t mind me. I’m just an old guy blowing off steam.
As for the SS cap, I do understand the idea (that those at the bottom pay the most proportionally because as a population they also benefit the most).
I’m not suggesting removing the cap altogether. It is possible simply to tweak the cap a few bucks and the whole “SS is going broke” meme evaporates for decades to come.
I’m just tired, frustrated and embarrassed that as a society we do such a poor job of taking care of those at the bottom of the economy. And the income gap between rich and poor continues to yawn bigger as the years pass.
Despite the misleading example, most couples in their 20s and 30s don’t earn as much as their parents.
Secondly older Americans are wealthier than younger Americans – often by quite a bit. They are more likely to own their homes, have finished with the costs of raising children, etc.
Thirdly, there are already large cross generational subsidies in place – both Social Security and Medicare are cross generational subsidies that take money from the young and redistribute it to the old.
On top of this, you now propose to add cross generational subsidies for Health insurance – 20 and 30-somethings with NO health problems would pay the same as 60 year olds with hypertension, diabetes, etc.
If we are all “in the same pool”, how about these pools:
Auto Insurance – why not have a 25 yo man with 2 DWI’s who drives a Corvette pay the same as a 55 yo woman who drives a minivan.
Life Insurance – why not have a 25 yo woman with no health problems pay the same as a 75 yo male smoker with hypertension and diabetes.
And while we are at it – Home Owners Insurance – why not have the premiums for a 5,000 sq. ft. house built next to the Ocean and a 2,000 sq. ft. house built on solid ground be the same.
P.S. I am a 55 year old with 3 children, who would benefit financially from having my children subsidize my health insurance.
Legacy Flyer–
Your generalizations about older people being much wealthier than younger people apply only to the upper-class– that 5% of the nation who earn more htan $100,000 a year (as individuals).
Since you are a doctor, I’m assuming that is the group you belong to. In that wealthy group, older people are often extremely wealthy, owning homes worth more than a million, and household incomes well above $100,000.
But if you look at stats on the nation as a whole, you find that this is not the case.
In famlies where the head of the house is 25 to 34, the median joint household income is $50,000.
(You’ll find all of this data here http://www.census.gov/compendia/statab/tables/09s0676.pdf)
If the head of the household is 35-44 (oftan a male married to a woman is is 4 or 5 years younger)
median joint household income is $65,000.
Meanwhile, median income for famlies where the head of the household is 55 to 64, median incomed is only $68,000.
That makes middle-class households in that age group just rich enough that they won’t qualify for a subsidy, but too poor to afford a family plan costing $14,000 to $16,000 –or more. (Average family plan is now $13,000–in insurers can charge older customers twice as much . . .
Who could afford to help that 55-64 year old family?
Over 2 million households where the head of household is 25 to 34 earn
over $100,000.
Five million housholds where the heaad is 35 to 44 earn over $100,000.
I would suggest that the wealthier households in this younger group could afford to help older households, not by paying extra taxes, but simply by paying the actual cost of health insurance–without getting a 50% discount.
A surprising number of younger households are very wealthy– I don’t have time to look for data that breaks down households who earn $150,000, $200,000, $250,000 etc. by age, but I have seen it in the past. It is surprising to see how young many of the wealthiest are. The 1990s and the first 8 years of this century made a great many young WAll Streeters, lawyers and some businessmen extremely wealthy at an early age.
Note that, among 55 to 64 year olds, less than 4 million earn over $100,000.
And 2.6 million fall into the $50,000 to 74,000 bracket where most will not qualify for subsidies and would be very hard pressed to pay $14,000 to $16,000 on ther own.
The vast majority of Americans in this age group do not own their own homes, by the way.
These days, only a realtively small percentage of people pay off a 30 year mortgage before they turn 65 (or ever). Most homeowners have moved, and refinanced even if they didn’t move– so they’ll be paying interest for a very long time.
We all tend to only know people in our own economic class, and so that skews our perceptions. . .
(Maggie’s take on this, just posted, is excellent. I’m posting this anyway since it provides a different perspective of the same concepts.)
Legacy Flyer provides excellent examples of how insurance and social insurance have so little in common that perhaps they shouldn’t share the same name.
Individuals elect to protect themselves again certain losses by joining in pools that distribute that risk. Mandated auto insurance isn’t really an exception to this since it is not the individual’s own auto that is protected (a protection that the individual may elect to have), but rather the loss that others may suffer due to driver error that is protected. Variations in risk are appropriately built into these insurance products.
Social insurance programs also pool risk, but with different goals. They are designed to provide everyone with retirement income (disability being an unplanned premature retirement), and medical benefits in retirement (and disability). Other nations have decided that social insurance programs should provide medical benefits not only to the retired, but also to everyone. These programs do more than insure high-cost risk; they ensure essential health care for everyone. Everyone pays, and everyone benefits.
Establishing a transfer from the young to the old, using exclusively age as the criterion, is inappropriate. Because health care costs are now so high, a successful social insurance program for health care must establish a transfer from the wealthy down (rather than from the young up). Creating equity virtually requires that this transfer be through the tax system.
Taxes based on income are easy; taxes based on wealth are more difficult, but should be part of the process to avoid an excess transfer from younger individuals who are just beginning to accumulate wealth. There are tax policies that would do that, though the political threshold for adopting these policies is almost insurmountable. That doesn’t mean that we shouldn’t make the effort.
Don–
I agree completely that ultimately, what we want to do is to ask the wealthy to subsidize those who are not as wealthy.
And we should be taxing wealth as well as income for the reasons you cite.
The inheritance tax provides one vehicle. A VAT tax dedicated to healthcare (as Zeke Emanuel describes in his book) is another. (Because middle-income people would receive a health benefit worth far more than what they could possibly pay in VAT taxes, a VAT tied to that health benefit is not regressive.
It is really only since the 1980s that we have resisted taxing wealth (inheritances, capital gains) to such a degree.
Everything changed with Reagan’s election. It marked a watershed. We began redistributing wealth upward and haven’t stopped since.
Conserving, preserving and consolidating wealth in the hands of a small percentage of th population became the rasion d’etre of the conservatives. (See The Conservatives Have No Clothes by Greg Anrig)
With Obama’s election, we have reached another watershed. I am quite convinced that we are going to be redistributing wealth downward.
AT this point, taxes on the wealthy are lower than they were in the mid to late 80s. And few considered those tax levels “confiscatory.”
Meanwhile the economic gaps between classes have grown to a point that is very unhealthy not only for the society, but for the economy.
Because too much wealth was concentrated in too few hands in the 80s, in the 90s, and in this century, too much money wound up chasing too few goods (stocks and real estate.)
This led to the stock market bubbles and the real estate bubbles — we never really corrected for those bubbles. Prices fell–but then once again spiraled.
Today, we are paying the price with a recession/depression that will be long and deep.
Both with his fiscal stimulus package and with his proposal for raising taxes on those earning over $250,000, Obama is signaling a desire to get back to the income structure of more stable periods in our economic history.
Meanwhile, thanks to this recession/depression, the public is more eager for the government to provide social safety nets in the form of healthcare, good public schools, safer infratructure, a safe environment, Social Secrurity.
But if we want those safety nets, we need a transfer of wealth through taxes that makes us a largely middle-class –country–more like the countires of Western Europe where you don’t see the same extremes of wealth and poverty.
We enjoyed that stability in the 1950s and 1960s–and can again.
It can’t happen all at once, but gradually, I think we’ll see a transfer in coming years.
There is a difference between SOCIAL security and INDIVIDUAL security.
That distinction is easy to grasp but most people apparently can’t tell the difference.
The same principle applies to UNIVERSAL health care versus INDIVIDUAL health care.
Private insurance is in the business of administering (not providing) individual health care. But in order to have universal health care no insurance plan or collection of plans is truly feasible.
It’s like the difference between the US postal service and private services (UPS, FedEx, etc.). In the same way that the post office hasn’t put similar private services out of business, neither will government insurance (whether in the form of a “public option,” Medicare, the VA or whatever) put insurance companies out of business.
Maggie,
You are confusing income with wealth – they are not the same thing. The clearest example of this is sports figures and celebrities who make multi-million dollar salaries, yet will be bankrupt in a few years (Michael Jackson, Evander Holyfield).
Two families that have the same income can have dramatically different wealth. If you take a 35 year old that earns 100K per year and a 55 year old that earns 100K per year, it is highly likely that the 55 year old will be wealthier (greater home equity, greater value of pension/401K, college tuitions paid, etc). Of course over time, income tends to lead to wealth (presuming you don’t “blow it”).
You are also correct that many people do not pay off their mortgages completely (do not “own” their homes free and clear), nevertheless, if you look at the equity that people have in their homes (home value – mortgage) again, it is highly likely that older people will have built up more equity than younger people. i.e. They have more wealth in their homes.
In summary, I stand by my statement that older people tend to be wealthier (not the same as having higher income) than younger people.
On average, 55-yr-olds earn much more income than 25-yr-olds, and also need more health care. Should we let those with less income subsidize care for those with more income on average?
This is still really a side issue though. All health care costs are too high, and for specific reasons, and powerful reforms are possible that don’t require much in the way of tax dollars, but are not being touted as they should be.
Legacy Flyer–
You write: “You are confusing income with wealth – they are not the same thing.”
Golly, I wish I had known that during the 20 years that I spent as a financial jouranlist.
Seriously, once again I am afraid that you are assumign that the majority of 55-64 year old Americans are as fortunate as the people you know.
Over 40% of all 55 to 64 year olds have No retirement savings. Zero.
When you look at net worth–which includes the value of their homes as well as all other savings (retireiment savings and other savings and assets)
you find that in 2007 (the latest figures available) the average (median)household headed by a 55 to 64 year old had total household assets worth $271,000. In most cases, most of that $271,000 represented equity in their home. To tap into that money, they would have to sell their home.
Today (in 2009) that house is likely to be worth less than it was in 2007 –perhaps much less, depending on where they live. And if a good share of their retirement savings was invested in the stock market, or other volatile securities, their savings have probably shrunk by 20% to 35%.
Finally, that $271,000 –minus what they lost recently –is what they has to live on for the rest of their lives.
Keep in mind that the average household headed by someone over 65 has annual income of only $20,000 (including Social Security, any pension, dividends, capital gains, etc.)
This means half have less than $20,000 in income–many of those are people who have no retirement savings and very little equity in their home.
Meanwhile, the average 35 to 44 year old householdhas net worth of $81,000. Among those who have retirement savings, the average retirment acount was worth $81,000 in 2007.
They too have lost some of their retirement savings thanks to the stock market crash–but they have plenty of time to regain lost ground. If a 38-year-old manages to earn 8% a year on retirement savings of $80,000 would be worth $340,000 by the time the head of household was 65–AND THAT IS IF NEITHER HE NOR HIS EMPLOYER CONTRIBUTED ANOTHER PENNY TO HIS RETIRMENT ACCOUNT FOR THE NEXT 27 YEARS.
So when you look at both income and wealth, it becomes clear that a great many 55-64 year olds need help with their health insurance costs and that a great many 35-44 year olds are in a position to help them.
Once again, we as a society must think Collectively– not about me and may family or me and other people who look like me or me and other 40-somethings, or me and other baby-boomers.
Unless we learn to think collectively, this society is going to continue to crack–until it breaks into a nation of strangers, at war with each other.
Maggie,
Congratulations on being a financial journalist, however the examples of “wealth” that you used in your prior reply were income statistics:
“In families where the head of the house is 25 to 34, the median joint household INCOME is $50,000.”
“If the head of the household is 35-44 median joint household INCOME is $65,000.”
“Meanwhile, median INCOME for families where the head of the household is 55 to 64, median income is only $68,000.”
Your most recent reply does provide statistics on WEALTH rather than INCOME for which I am grateful since they make MY point. You say: “When you look at net worth … you find that in 2007 (the latest figures available) the average (median) household headed by a 55 to 64 year old had total household assets worth $271,000….. Meanwhile, the average 35 to 44 year old household has net worth of $81,000.”
You have provided documentation for what I said, “Secondly older Americans are wealthier than younger Americans – often by quite a bit.” Where you reside in Manhattan, $200,000 may not be much money, but in most of the rest of the country $200,000 is a lot of money. And remember, since this is an average there are cases in which the number is a lot bigger – “often by quite a bit”.
You say: “Unless we learn to think collectively, this society is going to continue to crack–until it breaks into a nation of strangers, at war with each other.” I agree with this statement, we should try to think collectively. In my opinion, further transfers of wealth from the young to the old are NOT collective thinking. Again, I would point out that this argument is contrary to my personal financial interest as a 55 year old.
Legacy Flyer:
Your last statement about the younger supporting the older is profound.
While I, too, agree we need to think more collectively, why transfer even more wealth (through lower premiums) to the older population?
Don Levit
It is clear that there must be cross-subsidization in order to ensure access to medical care for much of the lower half of the income spectrum. However, there seems to be a growing tendency to argue that health premiums of $13,000+ are more than almost any family should have to pay (excluding that small sliver of wealthy families whose resources have been targeted to solve the problems). You could design at most a one-time partial patch to the current system by increasing cross-subsidization. Subsidies obscure the critical question of whether the majority of those who purchase care would choose to spend their money in this way without subsidies. The fact that so many lower-income families with access to subsidized employer coverage choose to turn it down suggests that the answer is no for an increasing number – and that this phenomena will crawl up the income spectrum as premiums inevitably rise. Ultimately, there is no one to pay but us. The average family has to be more or less willing to pay for the average coverage. From this perspective, subsidizing families with incomes in the neighbourhood of $75,000 makes no sense. By this logic, in the long run, we will have the ridiculous situation of elderly families whose major source of income is social security – who can barely pay for necessities – receiving medical benefits that are worth far more than the income that must cover their other living expenses. Is this what those families would prefer? We won’t know, because they are not allowed to make that choice.
cordelia, robert feinman, steve
Cordelia– Thanks for your comment.
The CommonWealth Fund’s Karen Davis estimates that a public-option family plan would cost roughly $11,000–maybe a little less.
That is a lot for a family with joint income of $75,000–before taxes–unless they have an employer helping them pay for it.
But I also agree that we can’t afford to subsidize health insurance for people earning $75,000, $80,000, $90,0000—
So we need to bring down the cost of care. Premiums have soared in tandem with an increase, over the past 10 or 12 years in the number of surgeries we do, the number of diagnostic tests that we do, the amount of medication we take, the number of artificial devices we have implanted in our bodies, the number of specialists we see during our last two years of life.
In other words the volume of procedures and treatments has been soaring, and in many cases the price has been climbing as well.
Yet there is No Evidence that we are healthier than we were 10 or 12 years ago–despite all of the extra surgeries, etc.
So we need to eliminate the ineffective and unnecessary treatments. Then, premiums would come down –certain for the public sector plan, and private insurers would have to lower their premiums to compete.
How much can that couple earning $75,000 afford to pay for healthcare? In Switzerland, people pay 10% of their gross income before qualifying for help from the government.
Americans who are accustomed to having an employer paying for most or all of their healthcare might think that $7,500 (10% of $75,000) is a lot to pay for healhcare for a family, but I don’t think it’s an unreasonable share of a family’s buget.
And, if employers gradually stop offering health benefits, wages should go up for many employees . .
It’s complicated but my main point is this: we are paying too much for too much ineffective, unnecessary care. That has to change.
But we do have to require that everyone buy insurance. Otherwise, many people would wait until they became sick to buy it –and under health care reform, insurers would not be allowed to turn them down.
Moreover, even if insurers could turn them down, people who didn’t buy insurance know that, in the end, we won’t leave them bleeding in the street.
They will get care–it may not be the greatest care, but they will get some sort of care, and people who don’t buy insurance are counting on that.
Robert–
I think everyone should pay the same percentage of their income for health care—though very low-income people earn so little that they can’t afford to pay even $1500 a year.
Some people will need subsidies.
But I agree, people shouldn’t have to pay more because they are old or sick–just as we don’t charge parents with special-needs kids more to educate their children.
Steve– If we gave everyone a minimum plan, who would pay for their care when they needed more than minimal care?
There are a great many life-saving treatments that are necessary and effective–and very expensive. A minimal plan wouldn’t cover them.
I tend to agree with you, however, that it would be eaiser just to tax people and give everyone a voucher that entitled them to a comprehensive health care plan–with everyone getting the same voucher, just as most people get the same Medicare part A and B.
However, many reformers argue that Americans want “choices”–that they want a chance to “choose” their own plan from a menu of plans.
I tend to disagree, and fear this will lead to two-tier medicine . .
Maggie, I agree that the answer to the problem has to be cost containment – and I know that you do because I have read your book (which was great). So here is the crux of the problem: why do the “health reform” plans that are currently debated do so little about flaws in the system that seem to be generally agreed upon? We need more focus on primary care, more coordination, less and more carefully targeted specialist care based on empirical evidence about what works. The U.S. pays specialists far more relative to other countries, primary care about the same. So why do the current attempts at “health reform” not address the pay differential for specialists vis-a-vis primary care? Are the specialists that politically powerful? Similarly, it is generally agreed that fee-for-service incentives for providers are a key problem. Again, though, attempts to cut costs focus on prices rather than method of payment(e.g. Medicare hospital fees through the market basket adjustment). Why? In particular I am baffled at the path taken by the Obama administration. Peter Orszag (and seemingly Obama himself) appear to know what the critical issues are, but choose to leave everything in the hands of Congress. Why don’t they have a plan that embodies what they have been saying so forcefully? At a recent conference (Wall Street Comes to Washington) the general feeling was that the public is “not ready” for more active management of care – whereas they were ready to try these options in the early 1990s. Why? Why are we not ready? Surely the system is in enough of a crisis to motivate some tradeoffs? I would really appreciate your opinion on why there is not a serious effort to more fundamentally change the system.
Cordelia–
All of the things you are talking about are in the Medicare Payment Adivosory Commission (MedPac) reports–these are 200-300 page reports containing recommendations for Medicare that MedPac issues every March and June.
They have recommended hiking primary care fees, lower fees for some marginally effective very lucrative tests and treatments that are done in high volume, using comparative effectiveness research to set co-pays and fees, etc.
Senator Jay Rockefeller has introduced legislation that would put MedPac in charge of Medicare–and give MedPac the power to
impelement its recommendations.
President Obama has said that he favors this legislation.
Orszag knows the MedPac reports very well, and once we have health care reform, will be eager to implement its recommendations–both for Medicare and for the public sector option. (This is one reason why it’s so important to have a public sector option.)
But it would be very foolish for the administration to put details into the health reform legislation regarding lower specialists fees for certain procedures, using comparative effectiveness to set high co-pays for certain procedures etc.
The conservatives would immediately leap on these details to talk about governmetn “rationing care,” a “government takeover of healthcare etc.
Most of the public is not sophisticated enough to understand that the administration wants to eliminate ineffective care.
Most Americans believe that anything their doctor recommends Must be Effective–because their doctor recommended it.
If we want healthcare legislation to pass, the less detail the better.
It should lay out over-arching goals– but try to get into detail about to achieve those goals.
Many in the mainstream media woudl like the administration to go into detail–so that reporters would have something to write about.
We would begin getting stories in the Washington Post and the New York Times warning “Health Care Reform May Be Bitter Pill to Swallow” or “Administrations Claims
Americans Getting Too Much Health Care.”
Controversy sells newspapers.
Also WaPo in particular–and to some degree the NYT–seem opposed to aspects of health reform that might make some of their generally affluent readers unhappy even though, in fact, those readers woudl be better off if they weren’t exposed to unnecessary treatment.
Explaing what’s in my book to the majority of the American public will probably take about 10 years. We can’t afford to wait 10 years before going ahead with reform–health care costs would be totallly out of control by then.
So we need to go ahead with this first piece of ground-breaking legislation without going into too much detail.
Reform will take more than one piece of legislaition.
I deeply hope Jay Rockefeller’s bill will pass–though it will be hard, and they may have to wait, possibly until after the 2010 election, when it’s likely we’ll have more liberal Democrats in Congress.