Penny on graph

Wise Beyond Their Years

Obamacare by from The Weekly Standard, November 27, 2013

Former president Bill Clinton said recently that Obamacare “only works .  .  . if young people show up.” But it won’t work—because young people won’t show up. Obamacare gives them too many reasons not to do so.

One reason is that Obamacare makes things more expensive for them. The Obamacare arithmetic depends on more young people choosing to buy government-approved insurance than were previously willing to buy cheaper, often better, insurance through the free market.

In its government-run exchanges, Obamacare raises premiums for the young by suspending actuarial science. It forbids insurers from considering some variables that are actuarially relevant to health care, such as sex and health, while also limiting their ability to take age into account in an actuarially based way. Under ordinary principles of insurance, a healthy young person pays a lot less than a person nearing retirement. Under Obamacare, that’s not so. Yet President Obama’s centerpiece legislation depends upon young people’s willingness to pay these artificially inflated premiums.

Another reason the young are unlikely to show up in sufficient numbers is that Obamacare gives many of them an easy out: They can stay on their parents’ insurance free of charge until they’re 26. As for the rest, with the elimination of preexisting conditions as a barrier to buying health insurance, many will choose to go without coverage until they’re sick or injured.

In other words, Obamacare makes insurance more costly while simultaneously making it less necessary—especially for the young.

In order to induce young people to buy in, Obamacare uses the carrot of taxpayer-funded subsidies and the stick of compulsion, enforced by the IRS’s collection of a fine from those who fail to show proof of government-approved health insurance.

But how attractive will these subsidies actually be? A new study by the 2017 Project finds that the subsidies—which flow to insurance companies, not to individual citizens—benefit the old at the expense of the young, and the near-poor at the expense of the middle class. At a given income, the younger you are, the lower your subsidy will be (assuming you qualify for a subsidy at all). In fact, it turns out that younger Americans will generally be better off financially if they simply pay the fine and forgo the expensive product that the government is trying to compel them to buy. In the long run, Obama-care’s website “glitches” will pale in importance next to nonparticipation by the young.

The 2017 Project study examines premiums and subsidies for plans sold through Obamacare exchanges in the 50 largest counties in the United States (excluding Massachusetts, which Obamacare allows to play by different rules, and Hawaii and Maryland, where the state-based exchanges weren’t working and thus did not allow for data-collection). Those 50 counties comprise more than 29 percent of the U.S. population. The study compares the costs and subsidies under Obama-care for various ages and incomes, in 5-year and $5,000 increments, starting with a 21-year-old making $20,000.

The findings are striking. Consider a 26-year-old (newly ineligible for Mom and Dad’s coverage) making $30,000 a year. Across these 50 counties, the average cost of the cheapest subsidized plan—the cheapest “bronze” plan—available to someone of that age from the Obamacare exchanges would be $2,134 a year. That’s roughly three times the cost of the cheapest plan this person could have bought pre-Obamacare, according to figures from the Government Accountability Office. Meanwhile, this 26-year-old’s taxpayer-funded subsidy, on average, would be $482, or just 23 percent of the premium. By contrast, a 61-year-old making that same $30,000 would, on average, get a subsidy of $4,018, covering 82 percent of the $4,885 premium for someone of that age.

In the normal world of actuarially based insurance, a health plan would cost a 61-year-old about five times as much as a 26-year-old, reflecting the roughly fivefold difference in the expected price of their care. But in the peculiar redistributive world of Obamacare, that notion is turned on its head. Once the respective subsidies are factored in, the 61-year-old would pay, on average, $867 a year in premiums, while the 26-year-old would pay, on average, $1,652. That’s right—under Obamacare, the person who’s expected to cost the health care system only about one-fifth as much would, on average, have to pay about twice as much.

Take another example: a 31-year-old making $35,000 a year. On average, the cheapest bronze premium for this person would be $2,340—also roughly three times the price of the cheapest plan available pre-Obamacare. The taxpayer-funded subsidy, on average, would be $258. Meanwhile, a 61-year-old making that same $35,000 would, on average, get a subsidy of $3,223—more than 12 times as much.

Moreover, if a 31-year-old man making $35,000 and a 26-year-old woman making $30,000 were to get married, giving them a joint income of $65,000, their combined subsidy would drop, on average, from $740 to zero, as Obamacare’s steep marriage penalty kicks in.

These figures reflect average subsidies across the 50 largest counties. For young people, however, the averages are inflated by hefty subsidies available to them in a few places—particularly in New York, where higher subsidies are needed because young people’s premiums have been even more dramatically spiked by New York’s outright ban on age-rating. For the young, therefore, the median—or typical—subsidy is much lower than the average subsidy. Indeed, the median subsidy available to the 26-year-old making $30,000 would be $77 for the cheapest bronze plan, covering a mere 4 percent of the premium. For the 31-year-old making $35,000, the median subsidy would be zero.

Meanwhile, the median subsidy available to a 61-year-old making $30,000 would be over $4,000, and the median subsidy for a 61-year-old making $35,000 would be over $3,000.

So: The typical twentysomething making $30,000 would get a taxpayer-funded subsidy of less than $100. The typical person between 21 and 41 making $35,000 would get no subsidy at all. And each would be on the hook for a post-subsidy premium of around $2,000, about three times the cost of insurance pre-Obamacare.

Again, that’s for the cheapest bronze plan. Such plans routinely have deductibles over $5,000—double the $2,500 deductibles for many pre-Obamacare “catastrophic” plans—and narrow doctor networks.

Then there is a disincentive unrelated to cost: Simply signing up for plans on the Obamacare exchanges invites the very real prospect of identity theft, as former Social Security commissioner Michael Astrue and others have warned.

In light of all this, many young people may decide it makes far more sense for them to pay the fine than pay the premium. The previously mentioned 26-year-old making $30,000 would be fined just $203—a pittance compared with the average post-subsidy premium of $1,652. The 31-year-old making $35,000 would be fined $253—nothing next to the average post-subsidy premium of $2,082. In paying the fine, each could take comfort in knowing that, in case of expensive illness or injury, it would always be possible to buy insurance at the next open enrollment period, which would usually be less than six months away.

Regardless of whether any given individual chooses to pay the low fine or the high premium, this much seems clear: Under Obamacare, there is more incentive for previously insured young people to decide to go without insurance than for previously uninsured young people to decide to buy insurance.

In short, Obamacare is not for the young. It artificially raises their insurance costs, limits their choices, jeopardizes their privacy, and offers them meager taxpayer-funded subsidies in comparison with those given to older people of the same means. But Obamacare depends on enticing the young to sign up. If young people ignore this administration’s propaganda, take a look at the data, and think for themselves, they won’t.

© 2013 by The Weekly Standard. Reprinted with permission.