High premiums, restricted access to care will make Obamacare exchanges unattractive to the young

Written by . Posted in 2014 Campaigns, Issue Watch

Published on September 25, 2013

Avik Roy looks at the newly released premiums on various state exchanges run by the federal government, and the feds’ misleading sales pitch:

“Premiums nationwide will also be around 16 percent lower than originally expected,” HHS cheerfully announces in its press release. But that’s a ruse. HHS compared what the Congressional Budget Office projected rates might look like—in 2016—to its own findings. Neither of those numbers tells you the stat that really matters: how much rates will go up next year, under Obamacare, relative to this year, prior to the law taking effect.

Former Congressional Budget Office director Douglas Holtz-Eakin agrees. “There are literally no comparisons to current rates. That is, HHS has chosen to dodge the question of whose rates are going up, and how much. Instead they try to distract with a comparison to a hypothetical number that has nothing to do with the actual experience of real people.”

Even worse, the people who will face the highest rate increases are the ones whose participation is necessary to make the system work — young, healthy people. Without them, premiums will go higher as the older and sicker uninsured (and workers who have their health plans dumped) move into Obamacare exchanges. That’s what’s known as the “death spiral.”

Here’s the Manhattan Institute’s map of percentage premium increases, which you should note are worst in states where health insurance has been relatively affordable for years:

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You can also see the map for premiums for young women at the link.

Yes, some of these folks will receive subsidies to help pay these new, skyrocketing premiums. (CBO estimates that 2 percent of Americans will get exchange subsidies next year, and that in the future 6 percent will get them routinely). But three points on that.

First, these subsidies combined with higher premiums will take young people who did or at least could afford to pay for insurance on the own and turn them into welfare clients, newly dependent on the government, in many cases without even saving them any money on net. I don’t disagree with the idea of a health insurance safety net to prevent poor people from dying of easily preventable causes, but how is a reduction in middle-class self-sufficiency a good thing?

Second, taxpayers have to finance a good deal of the Obamacare-created inflation that you see on the above map. As we’ve learned in higher education, when you subsidize ever-rising prices, you end up in a race you can’t win, chasing prices upward until no one can afford insurance on their own.

Third, and most important, relatively affluent (as in, making more than $33,000) and healthy young people will get little or no help in meeting these individual market premiums that are doubling and tripling in cost. Even those who get subsidies are likely to pay more than they would now. What do you think that will do to exchange market participation? Throw in the fact that the Obamacare regulations would be forcing these prices even higher if not for insurance companies’ efforts to reduce their doctor networks and limit access, and you have a disaster on your hands. Why would anyone enroll in a system like this unless they were desperate and had no other choices?

This is exactly what opponents of Obamacare predicted. When high prices dampen enrollment by the young into insurance exchange markets this winter, premiums will have to rise afterward to reflect the fact that the healthiest people in America are doing gymnastics — going without insurance, changing or choosing jobs based on whether companies self-insure, etc. — so as to avoid enrolling in Obamacare’s exchanges and getting stuck with sky-high premiums for sub-par health care.

The worst-case outcome is that the exchanges risk being populated only by very sick and old people who need massive subsidies to make premium payments that look more like rent payments.

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