Study Shows Individual Health Insurance Market Is Failing Older Adults, Raising Questions About Tax Credits

Losing Employer-Based Coverage Leaves Adults In Midlife Years Vulnerable To High Expenses And Access Problems

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Early retirement because of poor health or loss of a job may be risky business if you lose your employer or group health insurance coverage. A new study shows that adults ages 50 to 64 who buy individual coverage are likely to pay much more out-of-pocket for a limited package of benefits than their counterparts who are covered via their employers. The study, which appears in the July/August issue of the policy journal Health Affairs, makes clear that older working-age adults could face financial and access problems if they lose their employer-based health plan. The authors conclude that today's individual health insurance market "does not work well" for adults in the age 50-to-64 range who lack access to group premium rates. The findings, based on an analysis by researchers at The Commonwealth Fund's Task Force on the Future of Health Insurance, illuminate the potential problems of implementing a tax credit system for the purchase of health insurance among certain populations. A number of legislative proposals, including one put forward by President Bush, would provide tax credits in the $500 to $1,200 range for individuals. Based on their analysis, the researchers say these would be insufficient to help older adults buy coverage. An analysis of premium costs in 15 cities showed a median cost of nearly $6,000 for a 60-year-old. "Even in states with community rating [which limits what insurers can charge], credits in the $1,000 range would pick up at most one-third of premium costs," the study finds. At a minimum, "tax credits would need to be adjusted by age and region to reflect market realities," the authors say. The study examines the viability of tax credits to help adults without employer or public group coverage in purchasing private health insurance. The study was authored by Elisabeth Simantov, former senior research analyst at The Commonwealth Fund; Cathy Schoen, vice president of research and evaluation; and Stephanie Bruegman, a program associate, both also at the Fund. The analysis was based on a survey of 1,523 persons ages 50 to 64 between August and November 1999. The authors also analyzed a variety of premium and benefit data in the nongroup health insurance market from 15 cities. Highlights of their findings:

  • Out-of-pocket premium costs were higher in the nongroup market. Nearly half with individual coverage reported annual out-of-pocket premiums of at least $2,000. In contrast, only 16 percent of adults insured through their employer paid that much.
  • Annual premium costs climb steeply with age in the nongroup market; 55-year-olds were quoted rates twice as high as those for a 25-year-old seeking comparable benefits; rates were three-to-four times higher for a 60-year-old.
  • Older adults with low incomes or who are in fair or poor health are more likely to have insurance through a public program or to be uninsured. The majority of older adults who have employer-sponsored coverage or who buy individual coverage are healthy and have higher incomes.
  • The currently proposed tax credits of $500 to $1,200 to encourage health insurance purchase for individuals are small relative to premium rates quoted midlife adults in the nongroup market. Even with a tax credit, low-income adults in this group would still spend one-quarter to two-fifths of their income for health insurance in the open market
  • Near-elderly persons are at high risk of access problems and financial burdens if not well insured. They rely heavily on prescription medications but do not always have coverage for them.
  • Nongroup coverage leaves adults in this group especially vulnerable to high out-of-pocket medical expenses. One of four adults with individual coverage had annual out-of-pocket medical expenses of at least $1,000. In contrast, only 15 percent of those with employer coverage reported comparable expenses.
The authors conclude that their study reflects the importance of risk pooling and broad-based participation to keep individual insurance markets accessible to all. For tax credits to be viable for all age groups, the authors say they must be implemented in concert with access and rating reforms that minimize or bar discrimination or that provide group coverage options. Health Affairs, published by Project HOPE, is a bimonthly multidisciplinary journal devoted to publishing the leading edge in health policy thought and research. Copies of the July/August 2001 issue will be provided free to interested members of the press. To obtain a copy, contact Jackie Graves at Health Affairs at 301/652-7401, ext. 255 or via email, press@healthaffairs.org. This article and selected others are available free on the journal's Web Site, www.healthaffairs.org.

Publication Details

Publication Date:
July 10, 2001

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