Will young people pay for mandated health insurance next year? Uh, probably not …
posted at 4:01 pm on August 26, 2013 by Bruce McQuain
Chris Conover takes to the pages of Forbes to discuss whether or not young people will take the plunge next year and buy health insurance as required by ObamaCare. His conclusion? Not if they’re smart.
A recent study by the National Center for Public Policy Research shows that:
- About 3.7 million of those ages 18-34 will be at least $500 better off if they forgo insurance and pay the penalty.
- More than 3 million will be $1,000 better off if they go the same route.
Consequently, many more will opt to pay the extremely modest tax rather than fork over many thousands of dollars to purchase coverage that became substantially more expensive for young people thanks to the misguided pricing rules imposed by Obamacare. The risk that the law will fail in an “adverse selection death spiral” thus has gotten much larger. This claim is not in dispute. Instead, progressives argue it is too narrow. If only young people would consider the long run—when they too are old—they would discover that enrolling in Obamacare is in their self-interest.
The “long run” as articulated by Ezra Klein:
Young people grow old. Healthy people get sick. Rich people become poor. The people overpaying to keep costs low today are the people underpaying 10 or 20 years from now.
But is that true? Will it all “even out?” Conover says heck, we can test that theory empirically using the law’s parameters and requirements:
Community rating can be shown (both theoretically and empirically) to be both inefficient and unfair. It is inefficient because it encourages low risk individuals (think young people) to remain uninsured rather than over-pay for health insurance. It is unfair because it ends up transferring resources from healthy poor people to unhealthy wealthy people. But this unfairness aspect might be undercut considerably if it turned out that from a lifetime perspective, young people who overpaid when young were more than compensated by their future savings from community rating once they got old.
So I first created a set of experience-rated premiums for every single year of age between 18-64. I then calculated the present value of these premiums over a lifetime—which in this case meant ages 18-64 since even under Obamacare, people are assumed to enroll in Medicare at age 65. I examined 4 different groups of young adults (age 18, 22, 25, and 30) using different discount rates. I then created a parallel set of premiums that were constrained to meet the Obamacare modified community rating rules, namely, that the premiums for the oldest plan members can be no more than 3 times as high as the premiums for the youngest members. If the present value of the Obamacare premiums is lower than the comparable figure for experience-rated premiums, then one could reasonably say that the intuition of Obamacare enthusiasts is correct: young people are better off under Obamacare since they ultimately will save enough on their premiums in old age to offset whatever “excess” premiums they are forced to pay in their young adult years. But as you can plainly see, for most age categories and most discount rates, the reverse is true. The lifetime cost of Obamacare is higher than under market-driven premium rates.
Gasp! You mean, we’ve been duped again? Since the only way for this nonsense to be true is via a zero discount (that doesn’t exist) then yes, we’ve been fed a whopper … again.
Conover goes into interesting detail to outline why ObamaCare is a bad deal for young people. And, just as importantly he points us to another article that points to another significant cost over the years that usually goes unmentioned – opportunity cost. What is the cost of the opportunity the money they spend on health care in terms of what they would have done with the money if they could use it for their choice?
Rituparna Basu lays out a hypothetical case study to make the point:
Consider that 25-year-old non-smoking male in California—let’s call him Brian. Brian is a freelance web developer committed to gaining enough experience and saving up enough money to one day start his own company.
Every dollar Brian can save right now brings him one step closer to starting and growing his business. In a truly free market, Brian would be able to choose a health insurance policy that best aligns with this goal. He could, for example, buy a policy that’s priced to reflect the real risk that he’ll get sick—just as he buys car insurance priced according to his risk of meeting with an accident. Since Brian is young and healthy, his premiums would be relatively low (just as safer drivers pay lower premiums), allowing him to put more of his income toward his start-up. Brian knows that when he’s older and in a higher-risk category, health insurers may charge him higher premiums, but that’s a fact he’s willing to face.
Even though Brian judges this to be the best way to manage his medical expenses, under the health law, it’s illegal for insurers to offer him a policy geared to his actual risk. Instead, per government mandate, a portion of the income he earns and intends to use to build his life is channeled into the pockets of others.
As a result of this and the many other wealth redistribution provisions in the health law, Brian’s goals are impeded. Maybe it takes him much longer to start the business he’s always wanted. When he finally does, maybe his venture is stunted by a lack of cash to put back into the business. Or maybe Brian must scale back or give up entirely his life-long goal, because by the time he can finance the start-up, he has a family and decides he can’t afford to take such a big risk.
Whatever the case, when Brian is sixty, he might get a few dollars from the younger generation (if they haven’t yet awakened to the injustice of the scheme, and if the whole system hasn’t already crashed). Meanwhile, Brian will have paid a high price, having been denied throughout the course of his life the right to decide how best to use his earnings.
Is it any wonder that the health law’s redistribution schemes had to be forced on people, by law? Nobody would choose to spend their own money this way.
Of course they wouldn’t … if given the choice. That’s sort of the reason for the mandate, isn’t it? That’s why we’ll soon have 16,000 new IRS ObamaCare enforcement agents making sure you do your part as demanded by law.
Watch for the progressive side of the aisle to continue to try to sell this sham as a good deal for young people in all sorts of snake-oil Ezra Kleinish ways. Because, as Basu says, “Let’s fleece our children and grandchildren” isn’t a slogan that is likely to garner much support.