Obamacare Needs Young Enrollees, but Costs Increases Create Challenge

Published August 16, 2013

Signing up younger, healthier Americans to government-subsidized coverage is key to the success of President Obama’s health care law. But this could prove challenging, given that the law also raises the costs of insurance most significantly for those same young and healthy individuals.

Obama’s law provides taxpayer-funded government subsidies will be available to assist those making up to $89,000 and a penalty, or extra tax—the individual mandate—will be imposed on those who do not purchase insurance. The mandate to buy health insurance was intended to ensure the insurance pool is not filled with older, sicker recipients. Having the young in the insurance pool, with their low health care costs, means the insurance offered in the exchanges will be more attractive and affordable to older and unhealthy Americans.

In effect, Obama’s law will be paid for by the young and healthy. This could prove challenging for the law’s supporters because the young are likely to see higher premium costs. Jonathan Ingram, a healthcare policy analyst with the Illinois Policy Institute, says young adults will certainly behave rationally, given that they can no longer be denied coverage if they have a preexisting condition.

“They can purchase a policy with all the bells and whistles whenever they need it, and according to the ACA no insurance company can deny them, so it makes perfect sense for them to forgo purchasing costly health insurance until they need it, especially if they are healthy and low-income,” Ingram said.

Young Adults Price-Sensitive

Young adults are as price-sensitive as anyone else when it comes to the cost of their insurance, according to a poll sponsored by the American Acton Foundation (AAF) of Americans between the ages of 18-40 who are uninsured, insured through their employer, or on the individual market.

“Among currently insured respondents, if out-of-pocket premium costs increase even 10 percent, 17 percent of respondents would discontinue coverage and pay the penalty indefinitely, or until an illness prompted them to sign up for coverage. If premiums increase by 30 percent, only 55 percent would continue purchasing coverage, and 45 percent would go without,” wrote Emily Egan, staff assistant at AAF, in the media release for the study. “This is troubling for the health reform law’s success for several reasons. One, premium rate shock for young adults is likely, if not certain, and will, for many young adults, be north of 30 percent.”

According to Egan, if the costs rise too much, this group will drop their coverage and instead pay the individual mandate’s fine. And those costs are expected to rise.

“An American Action Forum survey of large insurers found the average premium increase in five major cities to be 169 percent for a young healthy male. An Oliver Wyman study concluded those adults ages 21-19 would see premiums go up an average of 41 percent and for adults ages 30-39 the increase will average 31 percent,” Egan wrote.

Adverse Selection and the Young

According to Devon Herrick, a senior fellow with The National Center for Policy Analysis, if young adults drop their coverage in significant numbers, their decisions will lead to major adverse selection in the insurance risk pools. And without healthy people within the pools to subsidize those with high medical costs, the system collapses.

“The Affordable Care Act exacerbates this problem by forcing young people to overpay for coverage so that older, less healthy enrollees get a bargain. Everywhere this has been tried the premiums skyrocketed and coverage became unaffordable,” said Herrick.

Roger Stark, a health care policy analyst at Washington Policy Center and a retired physician, says young people will definitely avoid the system for as long as they can, as they are already prone to believe they’re too healthy to need costly health insurance.

“This is inevitable. One way to look at it is that if you don’t buy the government mandated insurance, the penalty is less than the cost of a policy… for now. If you are a smart thirtysomething, young and healthy, then you will figure this out and opt out and pay the penalty. It’s Economics 101,” Stark said.