Friday, June 7, 2013

McArdle on Young Invincibles

Megan McArdle asks, "Are Young, Single Adults Expecting Obamacare to Cost So Much?"

One excerpt:
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 [Wilkinson] 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...

We'll find out soon enough.