You’re a 26-year-old single dude, holding down a pair of part-time jobs tending bar and painting houses, and making about $24,000 a year. Thanks to Obamacare, you can finally get decent health insurance, just like people with full-time jobs at large companies do. But when you go online to check out your options, you see that even the cheapest “bronze” plan, which has high deductibles and co-payments, will cost you about $100 a month. Obamacare’s penalty for carrying no insurance next year is less than one-tenth of that. Do you buy the insurance anyway?
Obamacare critics think it will be a "tough sell," as Reason's Peter Suderman puts it. And they make a credible case. To get coverage under Obamacare, many young people will have to pay more than they’d pay for insurance today. That's because Obamacare prohibits insurers from offering ultra-cheap, bare-bones policies and restricts insurers’ to vary prices based on health status. It’s safe to assume that at least some young, healthy people will look at the numbers, figure Obamacare’s coverage just isn’t worth the price, and pay the penalty instead. A story by Christopher Weaver and Louise Radnofsky in the Wall Street Journal last week profiled several young people from Oregon who were contemplating that very option.
The danger here isn't just that these people will remain uninsured, leaving themselves exposed to crushing medical bills if they get sick or injured. If too many young, healthy people opt not to get insurance, then the insurers would be stuck with beneficiaries who are disproportionately older and sicker. The insurers would respond by raising premiums. While the system probably wouldn't collapse, it would certainly become more expensive—both for the government, which is subsidizing insurance for lower- and middle-income people, and for those people buying individual coverage without government assistance. That's why so many of the law's defenders, including me, worry about young people staying away.
But there good reasons to think the critics are wrong, that young people will sign up for health insurance, and that Obamacare will work as its designers intended. Here are six of those reasons.
1. The penalty will get bigger than it is next year. It’s true that the penalty for carrying no insurance is just $95 in the first year, which is a lot less than the full price of health insurance. But the penalty actually gets larger in 2015 and 2016, so that’s eventually $695 a year for a single adult, up to $2,085 a year for a family, or 2.5 percent of household income (whichever is greater). That won’t make much difference in the law’s first year, but it will make a difference afterwards—and insurers calculating their premiums can plan based on that increase.
2. The difference between the penalty and premiums isn't the only thing that matters. “A simple comparison of premium versus penalty is not the accurate way to look at this,” says Linda Blumberg of the Urban Institute points out. She's right. Insurance premiums cost a lot more than the penalty, but if you pay those premiums you are also getting something for the money you spend: Financial protection in case of illness or injury.
Think of it this way. Imagine you go shopping for a car and find one that costs several thousand dollars. If you decide not to get the car, you'll won't have to write a check for several thousand dollars—but you also won't have a car. Whether you buy the car comes down to how much you value it. The same will be true for insurance under Obamacare.
The real question, then, is how much young people value insurance.
3. Young people worry about getting sick and paying the bills. Everybody puts a different value on financial security and access to medical care. But two new surveys tell us something about how young people, as a whole, think about insurance.
One survey, published on Wednesday, came from the online newsletter Morning Consult. The poll measured interest in buying health insurance through Obamacare’s exchanges and, conveniently, the pollsters broke down responses by age. In the survey, about 40 percent of young people said they were “about certain” or “very likely” to buy insurance, while another 40 percent said they were “about 50-50.” Only about a quarter of respondents said they were “not too likely” or “not likely at all” to get insurance.
The other poll, published in June, is from the Kaiser Family Foundation. Eighty-seven percent of young people surveyed said they considered it “personally important” to get insurance, 88 percent said “insurance is something I need,” and 66 percent said they worried about paying medical bills in case of injury or illness.
It would be a mistake to interpret these surveys too literally. It’s one thing to tell a pollster you think health insurance is important. It’s quite another to spend what it will take to buy insurance. Some of the enthusiasm that the polls are picking up may be sheer political sentiment, which may or may not translate into how people actually behave once Obamacare marketplaces open for business. In the Morning Consult poll, older Americans were actually less interested in health insurance than younger Americans, despite their greater health needs. That’s probably because older Americans are less enthusiastic about Obama.
Still, the best indicator of how young people feel about insurance may be the way they respond when they have full-time jobs and their employers offer coverage. According to Aaron Smith, president of the groupYoung Invincibles, around seven in ten young people opt for insurance, even though it means sacrificing some take-home pay. That's nearly the same take-up rate as older Americans have.
Last week, after reading that Journal story, my colleague Ryan Kearney observed that "Everyone needs health insurance. Otherwise you might end up like Mike Boone, a bartender at Trusty's in Washington, D.C., who was stabbed while defending a woman who was being mugged. He did not have health insurance, and his medical bills last October, the Huffington Post reported, totaled $60,000 and rising." Some young people obviously realize that.
4. Most young people aren’t making $32,000. If you’ve followed the debate about “rate shock,” then you’ve read a lot about young people making around $30,000 or $35,000—people who have insurance now, but will end up paying more for it because they’ll no longer get the same preferential pricing insurers offer today. But young people making less than that will almost always qualify for subsidies that discount the price of insurance. And for those who earn a lot less, the discounts will be pretty big. According to the Kaiser Foundation’s subsidy calculator, a 25-year-old making $20,000 a year can expect to pay about $503 a year for a bronze plan. That's just $42 a month.
Obamacare critics frequently dismiss the impact of these subsidies, saying that they will benefit only a “narrow slice” of the population. But the slice isn't narrow! Median income for a 25-year-old is right around $25,000. And about a third have incomes below $23,000 a year, according to an analysis by health policy researchers Adrianna McIntyre and Josh Fangmeier.
Some of these young people will get insurance through Medicaid. Others will take advantage of the Obamacare regulation allowing people under 26 to enroll in their parents' plans if they don't get employer coverage of their own. The rest will be looking for private insurance and, when they go to the exchanges, they will find subsidies make insurance relatively cheap.
Don't forget that a lot of these people couldn't even think about getting insurance today. The cost would be prohibitive. Under Obamacare, they'll be eligible for subsidies that make insurance affordable for the very first time. The coverage might not be as comprehensive as they (or I) would like, but it will offer protection they've always wanted—and, for many young people, that will be enough.
5. Outreach can make a real difference. Precisely because many currently uninsured people can't even think about getting insurance, many won't think about it under Obamacare—unless somebody tells them about the insurance options and federal subsidies available to them. This is why the Obama Administration and its allies are investing so much time and energy into outreach, with a particular focus on young people.
It’s a difficult challenge, particularly in states where officials are not interested in helping or where local radio personalities are encouraging people not to sign up. (If you don’t know what I’m talking about, read Steve Benen or Joan McCarter.) But Administration officials have thought a lot about this, consulting with everybody from pollsters to retail consultants. Their plan is to reach people through public service advertisements as well as intermediaries like churches and unions. It helps that reaching young people in need of insurance means reaching large numbers of African-Americans and Latinos—groups that the Obama Administration and its allies know how to rally. The same channels that worked in Obama's presidential campaigns—think Spanish-language radio and black churches—could make a big difference with enrollment.
It helps Obamacare will also make purchasing insurance much simpler. Today it's difficult to compare benefits and prices online, particluarly if you have even minor pre-existing conditions that will cause insurers to alter premiums and/or benefits. Once the new online marketplaces are fully functioning—which, admittedly, might not be right away in every state—shopping by price and coverge won't be such a hassle.
6. Not every young person needs to sign up in the first year. Critics looking for counter-arguments to each of the factors above won't struggle to find them. Some young people won’t qualify for subsidies, they'll say, and some who do will decide the coverage still isn't good enough to justify the expense. Marketing will help, they'll acknowledge, but advertising and community outreach can do only so much. And you know what? They're right. Plenty of young people will act exactly the way the skeptics predict—they’ll check out the insurance options, decide they’re not worth the expense, and pay the penalty instead.
But that’s hardly the death blow that the skeptics seem to think. In order to work as intended, Obamacare doesn’t need every eligible young person to sign up. It doesn’t even need a majority. The Administration estimates it needs only about 2.7 million young people to enroll. Exactly how they calculated that number is unclear, but it’s not a precise, make-or-break figure anyway. It’s a simply a goal that reflects a rough sense that about a quarter to a third of all people signing up for Obamacare should be relatively young, or at least relatively healthy. (McIntyre broke down these numbers recently at the Incidental Economist blog.)
That’s not to say such low enrollment would be a good thing. But the law was always going to increase insurance gradually. The hope is that, over time, more and more people would take advantage of its coverage options, eventually bringing the U.S. close to true universal coverage.
Whether it all works out so neatly, obviously, remains to be seen. Young people in Massachusetts took advantage of the new insurance options, despite facing similar financial incentives and disincentives. But success in Massachusetts doesn't guarantee success in a place like Georgia or Arkansas. It's entirely possible, for example, that a handful of states will have enrollment problems but the majority won't. The Washington Examiner's Philip Klein, one of the smarter Obamacare critics you'll read, has suggested that "ultimately, this debate will settle itself." He's right. For all of the arguing about rate shock and young people, the only way to answer these questions definitively to watch what happens in 2014—and beyond.