Are Young, Single Adults Expecting Obamacare to Cost So Much?
Obamacare will raise insurance costs, not lower them, for a lot of
young, childless adults. What will happen when they find out?
By Megan McArdle
There's
been some pretty fierce back and forth in the preceding week over the question
of "rate shock": the hefty increase in insurance premiums that
people--particularly young and healthy people--can expect to pay for health
insurance come 2014. I don't really want to recap here, so if you want
to follow the blow-by-blow--and the blows got pretty fierce--Will Wilkinson has
a pretty good
summary over at The Economist.
I don't really want to play referee,
either, but I'll try. I think a fair summary would be that some older
and/or sicker people will find health insurance cheaper and easier to obtain,
while some young people will find it a lot more expensive than they were
expecting. People who supported Obamacare think that the former is
important and the latter is relatively trivial, while people who opposed
Obamacare believe the reverse. People who supported Obamacare are very
angry at people who opposed it for emphasizing the rate shock, rather than
pointing out all the benefits to other people, which would obviously present
Obamacare in a much more favorable light. People who opposed Obamacare
think since Obamacare was sold on the grounds that it would make insurance
cheaper for everyone except rich people, the fact that a lot of non-rich people
will apparently pay more deserves some individual focus. And since the
supporters do not regularly caveat their articles extolling the benefits of
Obamacare with a note about all the bad possible side effects, it's hard to
argue that the opponents are obligated to do the opposite.
Who's right? At some level, this is
a theological debate, not a technical analysis. I am going to argue that
rate shock does matter, for a number of reasons. Then you can decide for
yourself which aspect matters more.
The most basic reason that rate shock
matters is that I don't think young single people were expecting it. It's
true that during health care reform, the reformers acknowledged that some
people would end up with a big health insurance bill they hadn't had before.
But I wouldn't say that they exactly emphasized this aspect. The
implication that I, for one, took away from their analyses was that the
subsidies would substantially reduce the cost for even quite middle class
people. Maybe a successful young IT contractor living in a nice condo
would have to pay a few thousand dollars for the insurance he hadn't been
buying, but I was under the impression that your average scraping-by clerical
worker would pretty much have their bill covered, or reduced to some negligble
sum.
So I got a sort of a shock today when I
started playing with the Kaiser Family
Foundation's subsidy calculator. I had it at the back of my
mind that a single young freelance writer living in California, Washington, or
New York, and making $32,000 a year, would qualify for insurance at a basically
nominal cost. (The profession doesn't matter so much, but for obvious reasons,
this is a type that I'm particularly familiar with.) It turns out that
this person will qualify for a subsidy of about $213 a year, based on an
expected "Silver Plan" (the medium coverage package) cost of $3,018,
or about $235 a month.
Of course, if you make less than that,
you get a bigger subsidy; at $25,000 a year your annual subsidy would be about
$1400. However, if you make even a few thousand more, you get no subsidy
at all.
But don't panic just yet, Young People:
you don't have to pay $2805 if you buy cheaper insurance. Luckily
Californiajust released
their 2014 rates, so we can see what options at least a few of you
will have.
It looks to me like a 25- or 30-year-old
freelancer in the great state of California can probably get the Silver Plan
for somewhere between $200 to $250 a month. And if they're willing to
take less coverage--a high deductible "catastrophic" plan (available
only to those under 30), or the Bronze plan, which has more cost sharing, they
can pay as little as $185 a month in San Francisco, or $117 a month in Los
Angeles. Though I'm not sure I trust that last number; looking at all the
other plans; $150 a month seems more likely.
The good news for those turning 30 is
that regular "Bronze" plans aren't actually all that much more
expensive than catastrophic plans. The bad news is that that probably
means that purchasers of either sort of plan can expect to spend the full
limit--about $5,500 a
year, I believe--before they get much in the way of free health
services.
But I digress. Back to the monthly
cost for our just-getting-by freelancer in California; if we add in the monthly
subsidy of $17.75, their monthly insurance bill for will come out to somewhere
between $135 and $170 a month if they choose the options with the most
cost-sharing; $185 to $235 if they want something that will pay a substantial
chunk of their ordinary doctor's bills.
On the one hand, it's great that young
single folks can insure themselves for about $1600-2000 a year, even if they
don't qualify for a subsidy. On the other hand, as Will points out, lots
of young single people can insure themselves for a lot less than that right
now. I don't think this is what they've been expecting.
Anecdotally, they seem to be expecting
the kind of generous package that Mom and Dad have, at around the cost of their
monthly cell phone bill. I don't think it's sunk in that Obamacare will
force them to pay $150 a month for insurance similar to bare bones plans that
are available right now in many states for $100 a month--which they've declined
to buy. And I'd be willing to bet that the average childless adult making
$32,000 a year is expecting the government to kick in a lot more than $18 a
month towards the cost of this suddenly-more-expensive insurance.
Why were they (and I) expecting more
generous benefits? Because discussions of cost, and subsidies, tended to
be focused around the hypothetical family of four. Families of four
qualify for subsidies at quite high incomes--up to almost $95,000. That
made it sound rather broad based. But for childless singles, the income
range that qualified for help is much smaller. Effectively, a childless
adult with a college diploma, or for that matter, a trucking license, is
unlikely to qualify for more than nominal assistance in paying for health
insurance.
But how many young, single people are
there? Is it really enough to worry about what they're expecting?
Well, according to a 2009 brief
from Kaiser, childless adults compose almost 60% of the population
of uninsured.
Of course, not all of those people are
young; some of them are in their 40s and 50s. Those people would be quite
happy to pay $150 or $235 a month for insurance. (Unfortunately they
won't get to, since the plans are lightly age-rated; for a 40 year old San
Franciscan, the Silver plan will cost at least $300. But that's still a
pretty good deal for them.)
But the other thing we know
about the uninsured is that they skew quite young. 41% of them are adults
between the ages of 18 and 35. Another 18% are children.
Childless adults are about 65% of the
total population of uninsured adults, which means that they are probably a
majority of the young adults as well, so some back of the envelope math with
fairly conservative assumption indicates that at least one in four of the
uninsured are young childless adults. Of course, some of them will be
poor enough to qualify for big subsidies, or Medicaid. Still, we're talking
about millions of people who are in for a bit of a shock.
To which you might fairly say you can't
please everyone, after all. They'll be grateful later, when younger
people are subsidizing their insurance.
To which I would offer two rejoinders.
First is that these people may have supported Obamacare precisely because
they didn't understand what it meant for them. That doesn't seem quite
fair. It probably should have been made clearer to Obama's large youth
fanbase that what Obamacare will probably mean for them is a fairly substantial
bill, not a lot of government assistance.
But here's the bigger issue: these people
aren't buying insurance now, even though, as Avik Roy has pointed
out, there are catastrophic plans available that cost a lot less
than $150.
Yes, I understand that some people get
rejected because they have pre-existing conditions; for those people the price
insurance is now infinite, and it is about to come down a lot. But the
insurers are not merely advertising insurance policies because Marketing wanted
something for the interns to do. They do actually sell insurance to
people. Will notes that he has purchased catastrophic coverage for about
$100 a month, even though he is . . . not 21.
Ten years ago I bought a catastrophic policy for even less than that, despite
an autoimmune disease and raging asthma. (I had to give it up when I
moved to New York, where such policies are illegal).
Most young childless adults in most
states could purchase catastrophic insurance right now for about the cost of a
cell phone data plan. They have not done so. Maybe this is because
they don't realize how cheaply they can acquire bare-bones coverage. Or
maybe they have a hard time fitting even $100 a month into a tight budget. The
monthly take-home for someone making $32,000 a year and living in a major city
is probably something under $2,000. As I well recall, carving an extra
$100 out of that is not easy.
Leave aside the hardship we may be
imposing on them by requiring them to purchase insurance (or pay a penalty that
will eventually sum to hundreds of dollars). What are they going to do
when they find out that they have the option of paying a fairly large sum for
very modest coverage, or a really difficult amount for the kind of insurance
that they thought they were going to get for practically free? Keep in
mind that California's exchange has actually been more aggressive about trying
to keep rates down than most states will be.
Will implies that they probably won't
buy. I am agnostic. The individual mandate is now the law of the
land, and Americans are pretty law abiding. Also, people clearly like
having health insurance; they opt for more generous coverage even when it's not
cost effective, and unions will give up almost anything else to protect health
benefits. This may be enough to get the healthy youngsters joining the
exchange.
But then again, it may not. And if
they don't, that's going to be a really big problem. Without the
subsidies from "young invincibles" paying $150 a month for almost
nothing, the older, sicker part of the insurance pool will have to pay more.
The healthier ones may eventually decide that they simply can't afford
it; better to pay the fine, tolerate the tiny risk of a huge ER bill, and count
on the fact that you can always sign up for insurance if you get sick.
Rinse and repeat until the only people in the market are incredibly
expensive to cover. This is what has happened to the current individual
market in the State of New York, where everyone is theoretically able to buy
insurance in the individual market, except that no one could possibly afford
it.
The best evidence against this
possibility is simply that it didn't happen in Massachusetts. Still, I
don't think we can entirely rule it out. Massachusetts started out with a
relatively small population of uninsured, and a growing economy where employers
are actually adding salaried positions with good benefits. That's not the
situation in most states in 2013.
Which is why, as I say, you'll have to
judge for yourself how much this matters; there's still too much up in the air.
The one thing we can say for sure is that come October, we should
probably prepare for some complaining.
No comments:
Post a Comment