The Appropriateness of Age Rating

National Health Expenditure Data (NHED) obtained from the Centers for Medicare and Medicaid Services (CMS) allows for the comparison of personal health spending based multiple factors. Considering the debate surrounding the appropriateness of age rating variation, this analysis seeks a simple understanding of how much different age group spend on health care services.

Source: Imad HADDAD (Flickr/CC)

When looking at the annual growth of spending on health care, the group with the highest rate of change are adults aged 45-54. These middle aged adults have experienced over 10 percent growth in annual health expenses in the period from 1987-2004, eclipsing the growth even among the extremely elderly (greater than 85 years old) population.
Per capita expenditures on health, however, reflect a steady increase associated with age. In 2004, total per capita health care expenditures averaged $5,276. The least costly population was children (individuals up to and including age 18), with a per capita spending of $2,650. Health spending continually increased with advancing age up to a per capita average of $25,691 for those individuals 85 and older.

Adults aged 19-44 spent $3,370 per capita in annual personal health care. Adults aged 45-54 expended $5,210 and those aged 55-64 expended $7,787.

Additional data from Medical Expenditure Panel Survey (MEPS) as analyzed by the Kaiser Family Foundation provides an even more refined, albeit slightly different, breakdown of health care costs for American adults. Adults age 18 to 24 accrued $1,282 annually in per capita health expenses in 2004. Americans aged 25 to 44 spent $2,277 per capita annually while individuals aged 45 to 64 averaged $4,647 in annual medical costs.

Depending on the metrics used, the higher cost age group (among non-elderly adults) spent 2.3 times (according to NHED data) to 3.6 times (according to MEPS data) as much as the lower cost group.

As legislated in the Patient Protection and Affordable Care Act (PPACA), the maximum variation in premiums for adults in the individual or small group market is limited to a ratio of 3 to 1. This value appears to split the difference between the two estimates obtained for actual costs spent on personal health care. With these differing data sets, it is impossible to tell whether or not the age rating restrictions of PPACA or too strict or too lenient based on empirical evidence.

Commentary
Legislation is not often evidence-based. The age rating variation restrictions elucidated in the Patient Protection and Affordable Care Act (PPACA) appear to mimic the actual health care costs accrued by real individuals. However, as can be noted by the different values obtained across the two data sets, the true ratio at the extremes of adult age (that is, 18 year olds versus 64 year olds) is probably unknown with absolute certainty at this time.

The Medical Expenditure Panel Survey data appear to underestimate the true costs compared to the National Health Expenditure Data. This might suggest that a more detailed analysis of the National Health Expenditure Data could reveal an even larger variation in actual health costs between adults at the extremes of age. If so, the 3 to 1 ratio permitted for age-based premium variation might be too low.

The Centers for Medicare and Medicaid Services ought to undertake a more detailed analysis of NHED (perhaps limiting age groups to approximately 5 year bands: 18-24, 25-29, 30-34, etc.) in order to answer the question: “How much more does a 64 year old spend on health care than an 18 year old?” The question which unfortunately cannot be answered by evidence but only through the political process will remain: “Should people of different ages pay different amounts for health insurance? If so, how much?”

Centers for Medicare and Medicaid Services. National Health Expenditure Data. 2004.

Kaiser Family Foundation. Health care costs: a primer. Aug 2007; Publication No. 7670.

by
Cedric K. Dark, MD, MPH