ObamaCare: Still a Bad Deal for Young Adults

The Associated Press reports that young adults will face higher premiums under ObamaCare:

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That's when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.

The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

The article cited additional studies estimating premiums increases young adults as high as 50 percent. That was essentially the message of my recent Cato briefing paper, “ObamaCare: A Bad Deal for Young Adults.”

Supporters claim the new law provides subsidies that would help people afford the higher premiums. As I write in my paper, however:

The money for those subsidies has to come from somewhere, though. Presumably, some of it would come from young adults themselves in the form of higher taxes or the tax penalties imposed on those who do not purchase insurance…So the presence of subsidies does not necessarily mean that young adults would come out winners. Ironically, all the complexity may actually help the legislation pass Congress precisely because it obscures whom the legislation would tax.

Supporters also claim that although the higher premiums might be actuarially unfair for people who are young and healthy today, those people will eventually be old and unhealthy. Over the course of a lifetime, they reason, such policies would be closer to actuarially fair.

The problem is that we’ve heard this line before. Inter-generational redistribution is fundamentally unfair to the young because it creates a situation where the old, who vote, have incentives to ratchet up benefits – and to ratchet up taxes on the young, who don’t vote. Social Security collects from the young and gives to the old, and is clearly a net tax on the young. As Jonathan Gruber reports, the young have very little confidence – deservedly so – in Social Security’s implicit promises. Experience shows that whatever new taxes ObamaCare imposes on the young will grow over time.

Regardless, most young uninsured people already obtain insurance as they get older. As I report in my paper, 30.4 percent of those age 20-29 were uninsured in 2008 (including 33.8 percent of 23-year-olds), but only 13.4 percent of those aged 50-64 years were uninsured. So a significant number of uninsured young adults naturally transition into insured older adults. The main effect of the new law will be to take young adults who think health insurance is a bad deal at today’s prices and force them to health insurance at even higher prices.