Young invincibles? Who needs them?

"The success of Obamacare always rested on getting enough 'young invincibles' to enroll in exchanges."  This sentiment, shared by both ACA critics and advocates alike, was restated by Scott Gottlieb in a Forbes opinion piece, noting that recent data (reported in the Wall Street Journal) is suggesting lack of interest by this group. The proportion of young people signing up for Obamacare is low, and those who have signed up appear to have an above-average rate of health problems.  Is this trend, if factual and permanent, a threat to the success of health reform?

In my view, the answer is no. Having more young healthy people buying coverage on the exchanges will improve the wellbeing of some people, and it would also improve the cosmetics of the program, but the program really does not need them to do most of what it was intended to do. (Surprisingly, those who have the most to lose if their robust children do not jump into the risk pool are insured taxpayers.) I hasten to add that this does not mean the program would not benefit from signing up more low users of care, but enrolling them is not as crucial as many people seem to think.

The ACA changed the way individual insurance was priced and sold in three ways: (1) it required insurers to charge the same premium to someone of a given age regardless of health-related conditions; (2) it limited premiums for the oldest buyers to no more than three times the premium for buyers in their 20s; (3) it provided fairly generous subsidies for people with incomes below (and even a little above) the median income to keep premiums "affordable."

The first two changes are the ones that would make you think having healthy young people buy in would be important.  Keeping premiums low for those at high risk means they must be relatively high for those at low risk. In essence, this amounts to an excess charge (or tax) on those at low risk to cross-subsidize the premiums of those at high risk (primarily older men and younger women of childbearing age).

Since insurers must collect enough in premiums to cover what they will pay out as benefits, without many healthy young people in the risk pool, they will have to raise premiums for the rest. This will make the program look expensive and potentially drive away even more of the somewhat healthier people, possibly leading to an adverse selection "death spiral."

This is what the columnists and commentators have fixated on. Their dire warnings would be right were it not for the program's third feature — large premium subsidies.  Those eligible for them pay no more than a certain percentage of their annual income (from 3.3 to 9.5 %) for health insurance. This means that actual premiums do not matter to them, since they do not pay the actual cost.

In other words, for people of average or even-above average age and risk who get subsidies, the net premium they pay after subsidies is not affected by the actual premium that is charged.  If heathy young people run the other way, premiums will rise, but that will not matter to older and sicker purchasers who are subsidized.  So the enrollment rate for this population will be unaffected—no harm, no foul.

Likewise, insurers will not care about the lack of young people in the risk pool because the total premiums they collect will rise by enough to cover their costs, as long as they guess right about the mix of risks in setting them. Even if they guess wrong at first, they can take advantage of generous "risk corridor" subsidies that will help make up for their mistake.

Who loses when young invincibles don't sign up for coverage?  Well, those among them who run up large health care bills will lose. And they may restrain their use of routine care in ways that are harmful — since they are not really invincible.  Healthy insurance buyers who are not subsidized will also lose, because they will have to pay more, but this group is relatively small and should not be an object of political concern.

The biggest potential losers will be the taxpayers, since the less young invincibles contribute by overpaying for their insurance, the more taxpayers will have to pay in subsidies. However, even this has a potential silver lining, perverse though it may be, because the government will save on subsidies for poorer young invincibles who don't sign up for coverage.

To be sure, if gross premiums on the exchanges go up for "vincible" higher risk people because the low risk people do not come to the party, the situation will not look good - gross premiums will rise.  More seriously, if general taxpayers (not just "the rich") end up paying more to support this system than they were led to anticipate (since the president promised no tax increases for the middle class), the system's political stability could be threatened.

However, my biggest concern for the success of Obamacare is that taxpayers with good consciences will stop supporting subsidized insurance if we cannot show that it improves the health of those receiving it by enough to make it worthwhile.  Whether or not the younger dudes sign up is of second order importance.

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Editor's Note: Cross-posted on the Voices@LDI blog of the Leonard Davis Institute of Health Economics of the University of Pennsylvania.

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