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Robert J. Samuelson on the health bill's burdens for the young

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By Robert J. Samuelson
Monday, November 23, 2009

One of our long-running political stories is the economic assault on the young by the old. We have become a society that invests in its past and disfavors the future. This makes no sense for the nation, but as politics it makes complete sense. The elderly and near elderly are better organized, focus obsessively on their government benefits and seem deserving. Grandmas and Grandpas command sympathy.

Everyone knows that the resulting "entitlements" dominate government spending and squeeze education, research, defense and almost everything else. In fiscal 2008 -- the last "normal" year before the economic crisis -- Social Security, Medicare and Medicaid (programs wholly or primarily dedicated to the elderly) totaled $1.3 trillion, 43 percent of federal spending and more than twice military spending. Because workers, not retirees, are the primary taxpayers, this spending involves huge transfers to the old.

Now comes the House-passed health-care "reform" bill that, amazingly, would extract more subsidies from the young. It mandates that health insurance premiums for older Americans be no more than twice the level of that for younger Americans. That's much less than the actual health spending gap between young and old. Spending for those age 60 to 64 is four to five times greater than those 18 to 24. So, the young would overpay for insurance that -- under the House bill -- people must buy: Twenty- and thirtysomethings would subsidize premiums for fifty-and sixtysomethings. (Those 65 and over receive Medicare.)

Not surprisingly, the 40-million-member AARP, the major lobby for Americans over 50, was a big force behind this provision. AARP's cynicism is breathtaking. On one hand, it sponsors a high-minded campaign called "Divided We Fail" and runs sentimental TV ads featuring children pleading for a better tomorrow. "Join us in championing your future and the future of every generation," ended one ad.

Meanwhile, AARP lobbyists scramble to shift their members' costs onto younger generations. For example, the House health legislation improves Medicare's drug benefit. That would help the half of AARP members who are over 65. The other half, those between 50 and 64, could benefit from the skewed insurance premiums.

Although premium changes would apply mainly to people using insurance "exchanges," the differences would be substantial. A single person 55 to 64 might save $3,490, estimates an Urban Institute study. By contrast, single people in their 20s and early 30s might pay about $600 to $1,100 more. For the young, the extra cost might be larger, says economist Diana Furchtgott-Roth of the Hudson Institute, because the House bill would require them to purchase fairly generous insurance plans rather than cheaper catastrophic coverage that might better suit their needs.

Whatever the added burden, it would darken the young's already poor economic prospects. Unemployment among 16- to 24-year-olds is 19 percent. Peter Orszag, director of the Office of Management and Budget, notes on his blog that high joblessness depresses young workers' wages and that the adverse effect -- though diminishing -- "is still statistically significant 15 years later." Lost wages over 20 years could total $100,000. Orszag doesn't mention that health-care "reform" might compound the loss.

AARP justifies the cost-shifting as preventing age discrimination. Premiums based on age should be no more acceptable than premiums based on medical expenses reflecting race, gender or preexisting health conditions, it says. The House legislation bans those, so it should also ban age-based rates. AARP dislikes even the 2-to-1 limit. It thinks premiums for someone 22 and someone 62 should be identical. (In insurance jargon, that would be full "community rating.")

This is unconvincing. All insurance aims to protect against risk -- but within groups facing similar risks. Put differently, most insurance is risk-adjusted. Auto insurance premiums vary by age; younger drivers pay higher rates because they have more accidents. Homeowners' policies for similar houses cost more in high-crime areas. This is not "discrimination"; it's a reflection of risk and cost differences. Insurers that ignored these differences would soon vanish because they'd suffer heavy losses and lose customers.

On health insurance, we may choose to override some risk adjustments (say, for preexisting medical conditions) for public policy reasons. But the case for making age one of these exceptions is weak. Working Americans -- the young and middle-aged -- already pay a huge part of the health costs of the elderly through Medicare and Medicaid. These will grow with an aging population and surging health spending. Either taxes will rise or other public services will fall. Already, all governments spend 2.4 times as much per capita on the elderly as on children, reports Julia Isaacs of the Brookings Institution. Why increase the imbalance?

It's true that premiums for older people would be higher. But this might have a silver lining: Facing their true health costs, older Americans might become more eager to control spending.


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