The Obama health law is banking heavily on young, healthy people purchasing insurance in order to pay for the care of older and less healthy people, but a new study suggests the administration will struggle mightily to recruit enough young adults to make the system work because it doesn’t make financial sense for them to do so.
That’s the conclusion of a new study by the National Center for Public Policy Research, entitled “Why the ‘Young Invincibles’ Won’t Participate in the Obamacare Exchanges and Why It Matters”.
The Obamacare exchanges open for enrollment on October 1 and the bulk of the law kicks in at the start of 2014. That includes the individual mandate, which requires every adult to carry health insurance or pay an annual fine of $95 that the U.S. Supreme Court deemed a tax in 2012. To make the system work, the government needs millions of young adults aged 18-34 to get on board. Particularly targeted are childless single people.
“They are needed to cross-subsidize people who are older and sicker. If they don’t participate in the exchanges in sufficient numbers, then you run the risk of an insurance death spiral,” said National Center for Public Policy Research Health Policy Analyst David Hogberg, who authored the study and elaborated on the “death spiral” concept.
“This is where not enough young and healthy participate. The price of premiums rise to cover the cost of the older and sicker. Then more young and healthy drop out and the price goes up again. Eventually, a number of insurers are going to drop out of the exchanges because they will be unable to make a profit. So you’ll have fewer insurance companies competing, which also has an effect on the price,” he said. “You basically end up with an exchange pool here that’s older and sicker and the price of insurance is extremely prohibitive. You don’t have an insurance system that really does a good job of covering most people.”
In the exchanges, patients will have the choice of four basic types of plans – platinum, gold, silver and bronze. Platinum offers the most coverage and charges the highest premiums. But even the premium for the bronze plan dwarfs the amount someone will pay for refusing to purchase coverage.
The biggest chore for the administration is convincing healthy young people from ages 18-34 to buy a health insurance policy even though it will be much cheaper for them to pay the fine.
“I ran the numbers and even if you exclude just the people who would pay $1,000-plus in premiums, they would have an incentive to simply forego insurance because it would save them $1,000 and just pay the fine. If you exclude them and include the others who don’t have that incentive, you’d still come up about 780,000 people short, so even under the best of assumptions I don’t think they’re going to reach that number,” said Hogberg, noting that the government needs about seven million people to sign up for the exchange and about 2.7 of them need to be young, healthy adults.
Hogberg points out that a lot of young adults don’t make much money to start their careers and the $500-plus difference per year between buying a health care premium and paying the tax penalty is a huge one, even after the Obamacare subsidies are factored in.
“That’s easily a month’s rent many places in America,” he said, noting the difference could also make a big dent in grocery bills or car payments.
One of Obamacare’s most highly-touted provisions is also working against the administration, namely the rule that allows young adults to stay on their parents’ health plan until age 26.
“If those folks are on their parents’ policy, then they’re not going to be going on the exchanges. That means even less young and healthy people going into the exchanges. The burden in terms of getting enough young and healthy people in there to cross-subsidize the older and sicker is going to be that much more difficult,” said Hogberg.
Hogberg says we’ll know pretty quickly if the exchanges are getting a lot of customers because he expects the administration to trumpet statistics that are favorable to the program. If the numbers are low, he says we probably won’t know until mid-2014, when insurers adjust their premiums based on the initial response. He says if rates jump by 25 percent or more, the exchanges will be headed toward the death spiral.
