In my column Thursday, I look at how President Obama’s health care law will affect the hipster generation. Starting next year, all Americans will be forced to choose between spending thousands of dollars per year on health insurance they may not want or paying a penalty. I didn’t speculate on what younger Americans are likely to choose, but much of the outcome of Obamacare will hinge on this very question.
As I wrote, insurers need to lure younger and healthier Americans into the insurance pool to offset the cost of covering those with pre-existing conditions at a rate the federal government deems acceptable. In 2011, 18.5 million people in the United States between the ages of 19 and 34 were uninsured, according to the U.S. Census Bureau. Now, we can’t say for sure why these people were uninsured, what their income level was, or how many of those had pre-existing conditions. But the aim of Obamacare was to attract more young and healthy Americans into the insurance pool through a combination of carrots (subsidized insurance coverage) and sticks (a mandate penalty for failing to purchase insurance). When the law kicks in next year, it’s questionable whether this approach will prove effective.
According to Census data, the median income level of a male in the 25 to 34 age group is $32,581. At that income level, a 26-year-old would not qualify for subsidized health insurance, according to a calculator on the website of Covered California, which will be administering the state’s health care exchange. The monthly premiums — which were highly touted as reasonable among supporters of the health care law — are projected to be $236 per month for a “silver” plan. The cheapest “bronze” plan listed for a 25-year-old is $162 per month. Let’s just say the same policy is obtainable for our hypothetical 26-year-old. That means that over the course of a year, premiums would range from $1,944 to $2,832. In 2014, the mandate penalty will be the greater of $95 or one percent of the difference between household income and a person’s income tax filing threshold. Based on the 2012 IRS tables, this would be about $213.
So basically, the typical 26-year-old male with low medical expenses would have to decide next year whether he would rather pay roughly $1,700 (or more) extra for compliant health insurance as opposed to going uninsured. This is in addition to rent, food, student loan payments, credit card debt, transportation, entertainment expenses and so on. And keep in mind, this is under the rosy scenario, as supporters of the law are holding up California as a model. Some young Americans may decide to purchase the insurance under such circumstances. But will enough of them do so to make Obamacare functional? I remain skeptical.