Will the 'Young Invincibles' Buy Into Obamacare?

By Christopher Holt

On Tuesday, the bell rang and Obamacare officially opened for business, signaling a new front in the president's long-standing war on the young. The administration has stated it needs roughly 2.7 million 18- to 35-year-olds to enroll in the Affordable Care Act's insurance exchanges between now and the end of March in order for them to be successful.

What the administration really means is that it needs 18- to 35-year-olds to fork over substantially more than their fair share of the nation's health-care expenditures in order to subsidize older and sicker enrollees.

Until now, it has been unclear exactly how much more the young and healthy would have to pay. But today, the American Action Forum released a study that looks at pre- and post-ACA premiums for a 30-year-old male who buys insurance in the individual market. What we found is that his premiums are set to increase exponentially in 2014, with a nationwide average increase of 260 percent.

In fact, a 30-year-old male will see his premiums increase in every single state and the District of Columbia. And in 44 states he will experience premium increases of more than 100 percent -- topping out at a 600 percent increase in Vermont. In 2013, the average premium for the lowest-priced coverage was $62 per month. In 2014, that average will increase to $187.08 per month.

Earlier this year we conducted a survey of young adults and found that 17 percent of respondents who already had health-insurance coverage would drop it and pay the penalty if their premiums increased by just 10 percent. That number increased to 35 percent if rates jumped by 20 percent. Finally, 45 percent of respondents said they would drop coverage and pay the penalty if their premiums increased by 30 percent. In 2014, only two states will see rates for a 30-year-old male increase by less than 30 percent: New Jersey and Massachusetts, up 28 percent and 9 percent respectively. These lower increases reflect the highly regulated and expensive insurance market already in existence in both states prior to passage of the ACA.

Supporters of the health-care law will point out that this doesn't account for taxpayer-financed federal subsidies. However, for many of the "young invincibles" who the administration admits are so critical to the success of the exchanges, the subsidies may not be enough to incentivize coverage.

Our study takes a detailed look at the decision young people will make when faced with the mandate to purchase insurance. Even after accounting for available subsides, we found that premiums for a 30-year-old male will exceed the cost of the penalty in 2014 if his income is more than 133 percent of the federal poverty level (FPL). Below that income level, in many states he will be eligible to enroll in Medicaid next year and thus ineligible for insurance sold through the exchanges.

We found that this will remain constant in 2015, although by 2016 it will become financially advantageous to purchase health insurance with an income between 133 and 175 percent of FPL. Even then, beyond 175 percent of FPL, our 30-year-old will find that purchasing health insurance costs him more than paying the penalty.

For the exchanges to remain viable, young and healthy individuals must enroll. The exchanges need the artificially high premium payments the law foists upon these individuals -- the majority of whom cost insurers little to nothing to insure -- in order to generate enough revenue to pay for the health-care costs of the older and sicker individuals who are very likely to show up and enroll in the new exchanges.

Without the "young invincible," the exchanges risk what is known as a "death spiral," where premiums increase to cover a sicker-than-expected pool of enrollees, causing healthier enrollees to drop out. As healthy individuals leave the pool, premiums increase again. This process can continue until it becomes financially unsustainable for insurers to participate.

So, how does the administration convince the "young invincibles" to enroll? In part, it is partnering with assorted celebrities and the NFL's Baltimore Ravens in an effort to convince young people that it's cool to pay way more for coverage than their age and health status merits -- and it's pushing moms across the country to urge their children to buy coverage, hoping that if pop stars and the defending Super Bowl champions aren't enough to motivate enrollment, guilt will be.

Ultimately the success or failure of the president's signature legislative achievement could depend on his ability to convince young people to purchase health insurance despite having created financial incentives for them to do just the opposite. Whether young Americans ultimately follow the president down this path remains to be seen, but it is surprising that a president who owes so much of his political success to young people would continue to push policies that are so detrimental to their wallets.

Christopher Holt is director of health-care policy at the American Action Forum.

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