Late last month, California provided new details on the coverage offerings on its health insurance exchange, set to begin providing benefits next January, in accordance with President Obama’s health care law. Liberals hailed the California news as evidence that Obamacare would be able to deliver quality health insurance to individuals at an affordable rate, and avoid the huge premium spikes that opponents have been warning about. But, as I immediately pointed out, the California claims were misleading. In a subsequent column and post, I explained why the California rates were a particularly raw deal for younger and healthier individuals, and why this is a problem.
Separately, Avik Roy caused a stir by writing in Forbes that some in California would see rate increases of up to 146 percent. This prompted denunciations from liberal writers Ezra Klein, Paul Krugman and Jonathan Cohn. Essentially, these liberals argue that it isn’t fair to focus on the insurance premiums for the young and healthy, because what really matters is that the health care law expands insurance to those who really need it but cannot get it now, either because it’s too expensive, or because they have pre-existing conditions and thus cannot obtain insurance at any price. Krugman wrote that looking at the cheap rates for bare bones coverage currently available for healthy individuals, “tells you nothing at all about the success of a program that offers insurance to everyone, regardless of medical history, and sets fairly high minimum standards for the quality of that insurance.”
The reality is the exact opposite. The success of Obamacare hinges completely on the young and healthy. The reason is that the dream of a system in which sicker individuals can obtain coverage at affordable rates is predicated on the idea that the government can corral a lot more young and healthy individuals into the insurance market to offset costs. As long as insurers are raking in profits by collecting premiums from individuals with virtually no medical costs, they can afford to take on more expensive patients. This is precisely why as president, Obama abandoned his prior opposition to the individual mandate and why his administration fought so hard to preserve it in court.
Liberals, as Cohn writes, have openly acknowledged that, “some young and healthy people would have to pay more.” The problem for Obamacare supporters is that right now, millions of younger Americans don’t bother getting insurance. So, if currently, this subset of the population doesn’t think insurance is a good deal for them, why would they be compelled to purchase even more expensive insurance once Obamacare goes into effect? As I constantly reiterate, a young American who chooses to go uninsured under the current system pays $0 per month in premiums.
There are two hopes for liberals to lure younger Americans into the market. One is through subsidies. The problem is, because insurance is cheaper for younger Americans, they don’t receive the same level of subsidies through Obamacare. Though the often-quoted figure is that Americans earning up to $46,000 (or 400 percent of the federal poverty level) will qualify for Obamacare subsidies, a 26-year old in California would stop receiving subsidies at $32,000. So, the other way to lure younger and healthier individuals is by punishing them for not having insurance. The problem is, in 2014, the penalty for not having insurance is either $95 or 1 percent of taxable income (roughly $213 for our hypothetical 26 year-old). Yet the cheapest policy offered on the California exchange would cost $1,944 annually. Would a young worker without much disposable income, quite possibly carrying student loans and credit card debt, have an extra $1,700 to toss around? And again, if that worker already chooses to go uninsured under the current system, why would he purchase more expensive insurance under Obamacare?
There’s an important moral and philosophical debate about whether it is fair to shift more of the nation’s medical cost burden on younger and healthier Americans. (Liberals would emphasize that one day, everybody will be old and sick.) But practically, liberals are making a huge miscalculation by dismissing those who argue that the health care law is a bad deal for the young. Ultimately, this debate will settle itself. And if Obamacare cannot make it worthwhile for young Americans to participate in the insurance market, the law will not be able to deliver the promised benefits to the old and sick.