Aging boomers face high cost of individual health insurance

In an era when it's getting harder to bank on steady employment and health care benefits, Joe Pallansch of Minneapolis has learned to prepare for the worst. Pallansch is in his mid-50s. In the course of his career in the manufacturing industry, he's been laid off four times, including for a time starting last May.

It had been about 20 years since Pallansch's last layoff, and back in the 1980s, it wasn't the end of the world. He says he knew he'd get more work and wasn't overwhelmed by the cost of purchasing health insurance in between jobs.

"I was able to spend $50 to $60 a month for basic protective insurance," he says. "You bought it quarterly, three months at a time."

But by the time of his most recent layoff this past year, Pallansch was considerably older. His wife Deborah, also in her 50s, doesn't get health insurance through her work. So when Joe lost his job, they lost two-thirds of their income and their health coverage. They had to start researching the cost of buying insurance themselves.

They were alarmed by what they found. One option was to pay for an extension of Joe's past health care benefits, which was about $1,100 a month.

The annual medical costs for a man age 55-59 are about five times the medical costs for a male that's age 20-25.

"But we couldn't afford it with unemployment," Pallansch explains.

The Pallansches earned too much to qualify for MinnesotaCare, the state's subsidized health insurance for low and moderate income Minnesotans. So they applied for individual health policies with a couple of different companies.

The Pallansches consider themselves to be in good health. Their worst problems are Joe's high blood pressure and Deb's sinus problems. Nevertheless, Blue Cross and Blue Shield of Minnesota turned them down without saying why.

Deb says their other health insurance option, with HealthPartners, came with both a high deductible and sticker shock.

"I just wasn't prepared for what the price was going to be," she says. "The premiums were $532 for the two of us, with a $10,000 a year deductible."

The barriers to health insurance Joe and Deborah Pallansch encountered are typical for many aging baby boomers who aren't insured through an employer. And they reflect a number of issues in health care.

Andrea Walsh, a top executive at HealthPartners, says for one thing, the health insurance market isn't designed to serve the needs of individual consumers. Instead, it's set up primarily for employers buying health plans for workers.

Walsh says it's costly to insure individuals, because so often they only want insurance for a limited period of time -- generally when they're between jobs, and they tend to have more health problems.

In any case, she says, the older you get, the more expensive your health care needs are.

"The annual medical costs for a man age 55-59 are about five times the medical costs for a male that's aged 20-25," Walsh says.

John Rother, the policy director of AARP, which advocates for older Americans, says the reason is no mystery -- advancing age can result in declining health.

"In a private insurance market, insurers are really motivated to insure healthy people, not sick people. And as you get older, you're much more likely to have had a cancer diagnosis, or heart problems or diabetes or something like that," he says.

Rother says flat-out denial of coverage is common among individuals who lose benefits in the last decade before they hit age 65.

"It's not technically age discrimination, but if you look at the consequence, people who are in their 50s and 60s, when they most need health insurance, can't get it," Rother says.

Most states do have a backup for people who have been denied health insurance by the private market. In Minnesota, the nonprofit Minnesota Comprehensive Health Association, or MCHA, covers individuals that private insurers consider to be too high risk.

MCHA serves 30,000 Minnesotans who have been denied private insurance for any of a number of reasons, including pre-existing conditions. But the hitch is, MCHA policies tend to cost about 20 percent more than the market rate.

MCHA could have been an option for Joe and Deb Pallansch, since they were denied coverage by one insurer. But whether they went with MCHA or a private insurer, their costs would still be pretty high, simply because of their age.

"Unfortunately, the ratings continue to get higher in the upper age groups," says Cheryl Frolund, the director of Small Group Sales at Blue Cross and Blue Shield of Minnesota.

Froland says insurance rates increase according to age because of Minnesota's laws. She says the state Legislature made the decision that individual policies would be tied to age categories, and that means insurance may be very expensive for some people.

But Frolund says the alternative to age-rated policies isn't great either. She says some states, particularly on the East Coast, offer what are called community-rated plans. Those plans charge uniform premiums, regardless of age. Frolund says, as a result, people at the other end of the age spectrum sometimes balk at the price.

"So what's happened on the East Coast is you'll have a rate of $400-$500 a month, whether you're 25 years old or 55 years old. And unfortunately, what you'll find out there is a much higher population of uninsureds," Frolund says. "Younger people are not going to pay those higher rates, so they just go without insurance if they don't have it available to them through their employer."

Community rating may bring down the cost of insurance for older people. But it's not a silver bullet, according to AARP's senior policy adviser, Gerry Smolka.

She says older people in states with age-based rating like Minnesota have to pay more for individual health insurance, but that doesn't mean more older people in those states are going without insurance overall.

Minnesota, Iowa, and Wisconsin, for example, have a lower percentage of uninsured people age 50-64 -- only about 8 percent to 9 percent-- compared to the national average of 13 percent.

Smolka says the reason is hard to pin down.

"It speaks as much to insurance in the state overall, and the economy, and how many people have insurance through employers," she says. "Income, immigration, all those things are factors in whether people have health insurance, since the vast majority of us have health insurance through our employers."

But Smolka says regardless of the causes, a lot of people in their 50s and 60s are left having to pay high prices for individual insurance plans.

There's no clear solution to the problem. HealthPartners says one way to reduce premium costs would be to require that everyone have health insurance -- that way more healthy people would be contributing towards the cost of treating the sick.

Blue Cross and Blue Shield of Minnesota says the expansion of consumer-driven health plans, which involve high-deductible policies, will help bring costs down because they discourage frivolous use of the health care system.

Joe Pallansch has his own approach. For now, his huge health insurance bills are a thing of the past. He has a job again, and his employer pays for his health coverage. But Pallansch says he's preparing himself for the possibility of getting laid off again. That means taking full advantage of health insurance now.

"You need to not put stuff off, like [when] you need to go to the doctor. For example, I needed a tooth filled. If there's something in your life you need to correct, you need to do that," he says.

And he's taking another precaution that's not always easy to do: He's squirreling away as much money as possible, so that if he ever does have to buy insurance again before he qualifies for Medicare, the costs won't sink him.

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