Health insurance isn’t like other forms of insurance. It’s not protection against the unlikely; it’s insulation against the inevitable. Most people never use their fire insurance. Almost everyone uses their health insurance. Eventually.
The key is that not everyone uses their health insurance at the same time, or with the same frequency. Sick people use it more than healthy people. The elderly use it more than the young. Women use it more than men.
The trick to making any health-insurance system work is to attract enough healthy and young people into the insurance pool. Their low costs offset the care provided to elderly and unhealthy people, who drive costs up. This is the task that obsesses the Barack Obama administration. It’s also the task that has begun to obsess its opponents. “The whole scheme is enlisting young adults to overpay, so other people can have subsidies,” Dean Clancy, vice president of public policy for FreedomWorks, told my Wonkblog colleague Sarah Kliff. “That unfairness reminded us of the military draft.”
Clancy is wrong: The subsidies are funded by taxes on rich people and by cuts to Medicare spending, not by the premiums paid by young people. In fact, young people are likely to be the biggest beneficiaries of the subsidies because they’re more likely than any other age group to be poor and uninsured.
But there’s power in Clancy’s larger point: A small number of young people — the ones who have the lowest risk and least need for insurance — are being asked to pay more than the current market calculates they should. Consequently, some who don’t qualify for large subsidies will conclude that it’s in their interest to skip insurance coverage and pay the penalty — remember the individual mandate? — which is less expensive than purchasing insurance.
There is a disclaimer necessary here, as in almost every discussion of the Patient Protection and Affordable Care Act: It’s not for everybody. About 150 million Americans get insurance through their employers. Obamacare’s insurance reforms have basically nothing to do with them. Almost 100 million more get their insurance from Medicare or Medicaid or some highly subsidized government-insurance program. Obamacare doesn’t much matter for them, either. Discussions about premiums under Obamacare are about the 8 percent of Americans expected to get nongroup health insurance through Obamacare’s new marketplaces.
The nongroup market right now is a bizarre health-care system that works best for those who need insurance the least. The sick and elderly are charged sky-high premiums or denied insurance coverage altogether. The upside of that practice, awful as it is, is that premiums are lower for young, healthy people. Obamacare ends that practice; as a result, some young, healthy people will end up paying higher premiums. Why shouldn’t they walk?
First, because of subsidies, which the insurance marketplaces make available on a sliding scale to almost anyone making less than 400 percent of the poverty level. The Kaiser Family Foundation estimates that, among people currently buying nongroup insurance, the average subsidy will be $2,672. For poorer, often younger people, that check will be much larger. So while the young and the healthy might be subsidizing the old and the sick, they’re receiving an even bigger subsidy themselves from the federal government.
The number of young people who make too much money to qualify for subsidies but don’t receive health insurance through their jobs is pretty small (and also not easy to pinpoint). But they exist. So how about them — why should they sign up for health insurance?
The easy answer is they might get sick or injured. Accidents — in cars, on ski slopes, walking down the street — happen even to the affluent. And Obamacare is intentionally structured to prevent people who go without insurance from acquiring it only after they need it. You can only sign up for health insurance during an annual open-enrollment period. So if you get hit by a car two months after you ignored the open enrollment, you’re not going to want to wait for the next enrollment period before you get health care. It’s going to cost you.
Of course, car accidents are rare, so that might be a risk worth taking. Yet even the small group of people who are young, healthy or too rich to qualify for subsidies and don’t have employer-provided insurance have a compelling reason to purchase insurance: They will not be young and healthy — or even necessarily rich — forever. Young people grow old. Healthy people get sick. Rich people become poor. The people overpaying to keep costs low today are the people underpaying 10 or 20 years from now. It’s a terrible mistake to believe your health-care needs won’t change over time.
Those young, healthy rich people will need a functional system in the future when they become older, sicker or poorer. So even for those least in need, health-insurance premiums are an investment — not in someone else’s future, but in their own. Only a cramped and narrow view of self-interest assumes that the status quo lasts forever. When it comes to health, change is inevitable. The only question is whether you’ll have insurance when it comes.