Obamacare and Those Invincible Youngsters

There is an ongoing media obsession with the number of young people who sign up for health care insurance through Obamacare. We have been repeatedly told that the success of the program depends on large numbers of healthy young people — the “young invincibles” — signing up for the program.

The story is that these young people will subsidize the rest of us by paying more for their insurance than they receive back from the system in benefits. The excessive payments from young people will cover the cost of the older sick people in the exchange.

If large numbers of young people opt not to sign up for insurance then the risk is that Obamacare would face a death spiral. With fewer young people in the program costs would rise, leading insurers to charge higher premiums. This would lead more healthy people to opt out of the program.

Those remaining in the program would be sicker on average leading to still higher costs and higher premiums. Pretty soon, only the very sick enroll in Obamacare and they are stuck paying very high premiums. The dream of affordable health care insurance will have been destroyed.

Based on this scenario, the story of the young invincibles has come to be a major morality play with some supporters of Obamacare arguing that these young people have a duty to sign up for their plan. Some have tried to appeal to self-interest, pointing out that even young healthy people can get in accidents or hit by serious illness.

Opponents of Obamacare have also picked up on the young invincibles, seeing them as their last desperate hope in undoing Obamacare. Some right-wing groups have even gone so far as to have rallies for young people to burn fake Obamacare cards.

The problem with the young invincible story is that almost every part of it is wrong. It is true that under the rules set up for insurers in the exchanges young people will on average provide somewhat of a subsidy for older people. However the size of this subsidy is relatively minor. It also is primarily a young male story since young women tend to do things like have children that raise their health care costs.

Furthermore, since the extent of the subsidy from the young to the old is relatively small, it really doesn’t matter much how many young people sign up for the program. The Kaiser Family Foundation did an analysis showing that even an extreme skewing of enrollees toward older people would only raise costs in the program by two percent. A two percent increase in costs is not close to being enough to produce the sort of death spiral that is the dread of Obamacare supporters and dream of Obamacare opponents.

For this reason the focus on the young invincibles is largely a distraction. However it is not an altogether harmless distraction.

First it does obscure the nature of the subsidies that occur under Obamacare and indeed any insurance. The subsidies are inevitably from the more healthy to the less healthy. And in fact those subsidies are much larger from the healthy old than the healthy young.

The arithmetic on this one is simple. Suppose someone in their twenties pays an average premium of $2000. Suppose a person between the ages of fifty-five and sixty-four pays an average premium of $6,000. (The actual ratio is three to one on average.) If neither makes any claims on their insurer over the course of the year then the young person has contributed $2,000 to cover the care of less healthy people, while the older person has contributed $6,000.

The key issue about the success of the exchanges has always been their ability to attract healthy people of all ages. The subsidy from healthy to less healthy already exists in the employer provided insurance market where employers effectively deduct the same amount from workers’ wages for insurance regardless of their health condition. So this re-distributional aspect of Obamacare already exists in the market that provides most people with their insurance.

The other reason why the focus on the young invincibles is harmful is that it distracts the public from looking at ways to improve Obamacare. These focus on reducing or eliminating the role for private insurers in the system as well as other sources of waste.

It would be good to get this debate going as quickly as possible. While the rate of growth of health care costs has slowed sharply in recent years, we still pay more than twice as much per person for our health care as the average for other wealthy countries.

As long as we obsess on the number of young people enrolling in Obamacare we won’t be paying attention to the real issue of eliminating waste. Of course we can all have a good time at the Obamacare card burning rallies.