It Doesn't Help Obamacare If Heavily Subsidized Healthy Young People Sign Up

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Tuesday, 05 November 2013 08:00

The obsession with healthy young people and Obamacare is getting really whacky. Yesterday the NYT had a piece reporting on the large number of people who would be able to get plans at little or no cost because of the subsidies provided under the Affordable Care Act. At one point it refers to comments from Mark V. Pauly, a professor of health care management at the University of Pennsylvania’s Wharton School:

"The availability of zero-premium plans may make the deal especially enticing to the healthy young people the marketplace needs to succeed,... 'This is such a good deal that you’d have to believe you were immortal not to really pick it up.'"

Actually the marketplace does not need heavily subsidized healthy young people to succeed. If healthy young people pay little or nothing for their insurance then it makes the adverse selection worse, not better. They are likely to have costs that exceed what they pay into the system. To succeed, the market needs healthy young people who do not have heavy subsidies and therefore pay more into the system than they receive back in benefits.

In fact, the key adjective is "healthy," not "young." To avoid adverse selection the system needs healthy people to sign up regardless of their age. It also needs people who earn enough so that they are actually paying a substantial portion of their insurance premium themselves. If the government is picking up the tab for the insurance, it doesn't help the system's finances.

 

Note:

The ACA provides additional payments to insurers if they get an especially unhealthy mix of clients so the issue really is the cost of the whole system, not whether some number of insurers are victims of adverse selection. Of course this will be a political question as to whether higher than expected costs lead to a scaling back of the system.