How the Health-Care System Holds Back Millennials

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Millennials don’t go to the doctor or take pills nearly as often as older Americans do. Yet they pay just as much for health insurance.

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Employees should have more flexibility in spending their insurance money.

T he beginning of 2023 represents an unfortunate milestone: All Millennials are now 26 or older and, per federal law, are no longer covered by their parents’ health insurance. The generation is officially on its own — and it’s vastly overpaying for insurance.

While there is no Millennial-specific data available, we know that people ages 19 to 44 are 34 percent of the population, while their share of total health-care spending is just 21 percent. This means that, as you’d expect, Millennials don’t go to the doctor or take pills nearly as often as older Americans do. Yet they pay just as much for health insurance.

This matters the same way it would if life insurance charged premiums assuming that everyone was at a high risk of dying every year. Ordinarily, insurance — e.g., life, car, and travel insurance — is there just in case something goes wrong. The more likely it is that something could go wrong, the more risk the company takes on and, therefore, the more expensive the insurance. But health insurance isn’t following this logic. Today it’s absurdly expensive, costing much more annually than one is likely to spend on health-care services over the course of a year. In addition, people typically shell out thousands of dollars before the deductible is met and insurance kicks in.

And that’s not the only way health care costs Millennials dearly. Almost 3 percent of their compensation goes to the federal government to pay for Medicare, the government program that subsidizes health-care coverage for the elderly. But that system is backwards: Current Medicare beneficiaries get anywhere from $2.40 to almost $8 worth of benefits for every dollar they paid into it during their working years. It would be okay if Millennials were paying it forward, but Medicare is likely to go bankrupt in a few years and may be long gone by the time they retire.

So Millennials spend thousands of dollars every year to cover health-care services they won’t use. Meanwhile, they report not having enough money to buy a house, save for retirement, or have kids. Where is the outcry over their wasted health-care dollars?

Few people seem to be bothered by this state of affairs. Part of the problem is that most Millennials have no idea that they’re spending so much on health care. Employers heavily subsidize health-care premiums, and many people pay only a little bit (or nothing at all) out of pocket for those premiums, so they feel like they’re getting a bargain. But all the money employers spend on premiums is part of workers’ compensation; instead of paying employees those dollars in the form of wages, employers are using the money to purchase insurance for them — whether they like it or not.

As for the Medicare tax, half of it is paid by the employer directly, so it’s invisible to workers. Health care is simply known for being expensive, so people assume that that’s just the way things are.

But even those who realize that they are spending too much on health care are powerless in this situation. Obviously, they can’t avoid the Medicare tax. And if they don’t like their employer’s insurance plan, they most likely can’t get a raise instead and take the health-benefit money home to spend on cheaper insurance. That’s also true of people who turn down their employer’s health benefits because they already have insurance through a spouse or the military: Their employer is saving thousands of dollars by not paying for their health insurance, but they won’t get a raise.

The situation is this way because our health-care system doesn’t look at patients as individual people with particular needs and wants, but rather as members of a collective group who don’t know what’s best for themselves. It takes their agency away by surrendering control over health-care dollars to employers, who enjoy a tax break for making decisions on behalf of employees.

To fix the issue of excessive spending on health insurance, Congress could demand that employers give health-benefit money to employees directly and allow them to contribute that money to a tax-free health savings account (HSA) that belongs to the worker, as proposed by health-policy expert Michael Cannon. The funds in the HSA could then be used to buy any insurance plan that meets the employee’s needs.

On the Medicare front, Congress can’t act fast enough to put Medicare on a sustainable path. Beyond taking steps to avoid the looming insolvency of the Hospital Insurance Trust Fund (a.k.a. Medicare Part A), lawmakers should acknowledge that the current model of Medicare financing involves significant wealth redistribution from the young to the old, and consider gradually raising the age of Medicare eligibility and making well-off current and future beneficiaries bear a greater share of the cost of their care.

As for Millennials, it’s time for them to look reality in the eyes. They should stop seeing health benefits as an unalloyed good and instead do the math to decide if those benefits are worth the money. They should also ask their employer for more pay if the health benefits on offer don’t meet their needs.

The status quo is a boon for insurance companies and for Medicare beneficiaries. But Millennials need to take matters into their own hands and push their employers and civic leaders to give them a better deal. No one else will do it for them.

Elise Amez-Droz is a health-policy manager in Washington, D.C., and a Young Voices contributor. She is a graduate of the Fuqua School of Business at Duke University.
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