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APRIL 26, 2009

The choice between prickly policies

Age-based pricing for health insurance has some consumers cutting back on coverage

Sue Rummel was determined to keep the custom drapery business she built over two decades afloat in a bum economy, so when her health insurance premiums jumped 16 percent last year, she scaled back her coverage and used the savings to balance her books.

Then she tore cartilage in her right knee, and her downsized health safety net failed to protect her pocketbook.

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Surgery left her with $2,400 in unpaid bills.

“It’s Russian roulette,” Rummel said.

”You pay the lower premium and hope you don’t need healthcare.”

Like the 62-year-old self-employed Danvers seamstress, thousands of other baby boomers are finding themselves in this bind - having to choose between expensive monthly premiums that rise with age, and cheaper plans with skimpier coverage and high out-of-pocket costs for doctors and prescriptions.

Consumer advocates had hoped that regulators overseeing the state’s pioneering health insurance overhaul would start to address this issue, by making it easier for self-employed people and retirees who are 50 to 64 to be exempted from a stiff tax penalty if they can’t afford insurance. Connector Authority board members recently postponed tackling the issue, however, saying they needed to further study it.

“There’s no apparent easy path here, and there have been so many other things on our plate,” Rick Lord, a board member and chief executive of the state’s largest business lobbying group, said in an interview.

Meanwhile, AARP Massachusetts, which has more than 800,000 members 50 and over, is hearing a growing number of complaints about age-based pricing in insurance, said its director, Deborah Banda.

“We have been maintaining a drumbeat on this for the last couple of years,” she said, “and now is the time to start pounding that drum harder.”

State law allows insurers to charge older people up to twice as much as younger people for the same coverage. In other states, the disparities can be even greater. One result is that more older people choose less comprehensive plans. Data from the Commonwealth Choice program, which offers state-approved private insurance, show that as enrollees grow older, more choose cheaper and less comprehensive coverage. Rummel, for example, would have had to pay $567 a month for comprehensive coverage, but opted for a more basic plan that cost $376.

Nearly everyone in Massachusetts is required to have health insurance or face a tax penalty, but regulators can waive the penalty if a person’s monthly premium is deemed unaffordable.

The AARP and a coalition of other consumer groups want state regulators to count out-of-pocket costs, such as deductibles and copayments, in addition to premiums when determining whether insurance is affordable. And they want the maximum percentage of a resident’s income spent on healthcare costs to be lowered to 8 percent. Some older residents, such as Rummel, now spend more than 12 percent of their income. These changes would allow more older people to avoid the penalty. But they would do nothing to make insurance more affordable, so AARP also wants lawmakers to tackle the larger issue of age-based pricing.

The practice should be abolished, said Nancy Turnbull, a member of the Connector Authority board, because it is unfair.

“We used to use other (pricing) factors that would horrify us now. Race was a factor in life insurance underwriting,” said Turnbull, who was a state deputy commissioner of insurance in 1990 when Massachusetts banned health insurance companies from denying small employers coverage because of workers’ preexisting medical conditions, or charging them more because of their illnesses. That law was expanded in 1996 to protect individuals.

Turnbull, who also is an associate dean at the Harvard School of Public Health, supports considering total out-of-pocket spending in determining whether an individual would face a state tax penalty for being uninsured.

But fellow board member Jonathan Gruber, an economics professor at the Massachusetts Institute of Technology, said adopting such a system is too vague. He also said it might encourage more people to go without insurance because they would be exempt from the tax penalty - a trend, he said, that would erode the state’s initiative to get nearly everyone covered.

Most people in Massachusetts buy insurance through their employers, which insulates them from age-based pricing because companies negotiate rates on behalf of all employees.

But self-employed people with private insurance often experience sticker shock when they get into their 50s. A new national AARP study found that a quarter of Americans age 50 to 64 spend more than 10 percent of their income on healthcare, while substantially fewer - one in six - younger Americans spend that much. (At age 65, most people are eligible for Medicare.)

If Massachusetts prohibited age-based pricing, insurance rates would increase for other age groups, said Dr. Marylou Buyse, president of the Massachusetts Association of Health Plans, a trade association that represents most insurance companies.

“Individuals, as they get older, use more healthcare services. It is a fair distribution now, considering use of the system,” Buyse said. “Young people will tell you they don’t think they should have to pay anything because they don’t use health insurance.”

Last month, two national insurance trade associations offered, for the first time, to end the practice of charging higher premiums to people with a history of medical problems - something Massachusetts already prohibits. The offer was made as Congress debates national healthcare reform and the possibility of creating a government insurance system that would compete with private carriers.

But the trade associations said they would still charge different premiums based on age - an indication of just how tough and complex the battle would be to ban age-based pricing in Massachusetts.

To help pay her medical and other bills, Rummel, the Danvers seamstress, has cleaned out most of one individual retirement account and signed up early for Social Security - taking $400 a month less than if she waited until age 66. About the only thing left to cut would be insurance coverage altogether.

“It’s almost as if I am throwing away the $376 monthly premium because of what I have to pay in out-of-pocket costs,” she said. “It’s almost not worth it.”

Kay Lazar can be reached at klazar@globe.com.

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