Obamacare's success hinges on the young taking bribes

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Article Highlights

  • Up to 2/3 of Americans under 30 eligible to purchase coverage under Obamacare could qualify for cash subsidies

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  • Obamacare forces young adults into making a Faustian choice between their healthcare and their careers

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  • The Obamacare subsidies could end up tying an entire generation of young people onto government handouts

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The success of Obamacare hinges on whether young professionals are willing to trade away some of their job aspirations for the certainty of government aid.

The government needs young adults to enroll in Obamacare. The entire scheme is based on an economic calculation that the premiums from young, healthy adults can be used to subsidize the cost of covering older, sicker Americans.

The problem is that the coverage Obamacare offers is a lot costlier than what many young adults now purchase in the small group or individual insurance markets. In some states, premiums for these folks (especially young men) could rise 146% (in California), and perhaps more. The law forces young people to buy insurance plans weighted down by mandated healthcare benefits that many of them don't require.

So how will the government get these young people to enroll? By bribing them.

Up to two-thirds of Americans under the age of 30 who (based on their income levels) are eligible to purchase coverage under Obamacare could qualify for cash subsidies to offset the cost of buying the coverage. The analysis was produced by the healthcare analytics and consulting firm Avalere Health. The analysis didn't make projections on how many people might choose to enroll. Just how many young adults - under current income estimates - would find themselves eligible to receive some kind of government subsidy to purchase a health plan under Obamacare.

Under current guidelines, a young, single individual earning between $15,000 and $45,000 annually will qualify for a subsidy to buy an Obamacare health plan. The amount of the subsidy depends on their total income. The subsidies could end up tying an entire generation of young people onto government handouts.

In the case of Obamacare, young adults will face a consequence in accepting the subsidies. Taking the government money could impede their economic aspirations.

The subsidies they get are closely tied to their level of income. As they earn more income at work, the amount of cash they get from the feds will congruently decline.

For example, a 30-year-old (non smoker) earning $20,000 annually would receive a federal subsidy in 2014 of around $2,400 to help offset the cost of purchasing health coverage under Obamacare. At $25,000 in annual income, his subsidy goes to $1,700. When his income rises to $30,000, that subsidy falls to $900.

The subsidies aren't reduced in a linear fashion as income increases, though. There are different tiers. Once an individual earns enough income to cross one of these tiers, they will experience a decline in their subsidy that could almost fully offset the incremental income that it took to cross over a particular income threshold.

The effective tax rate on the additional income earned could be astronomically high as consequence of losing the value of their subsidies as a person grows their income.

Young adults will have to gage whether moving up the income ladder at work will cost more in lost subsidies than they gain in additional income. Problem is that most young adults earn additional money in small increments of income. Often times, additional money is earned through overtime, or relatively small raises and promotions that accumulate over time. On the margins, being tied to a healthcare subsidy will dampen young peoples' economic mobility.

There are intangible costs for this as well.

For many young adults, it will be their first experience taking such a government check. There's a rich body of social and economic literature that looks at the cultural impact of making productive adults dependent on taxpayer-financed handouts.

Intellectuals on both the political right and the left worry that expansion of the welfare state is turning us into a nation where many expect, and see no stigma with, drawing regular financial support from the federal government.

The very success of Obamacare is reliant on the program's ability to compel healthy, young, working adults to start their professional lives tied to government payments. Of the 7 million people that the Obama administration expects will enroll in Obamacare in 2014, the White House say they need 2.7 million young adults to sign up in order to prevent insurance premiums from spiking for older Americans.

By sharply raising the cost of health coverage, Obamacare forces young adults into making a Faustian choice between their healthcare and their careers. Young professionals will grow increasingly dependent on government subsidies that many don't want, and that they previously didn't need. Far from liberating these young Americans, it will hold them hostage to their current incomes, and careers.

American Enterprise Institute (AEI) Resident Scholar Scott Gottlieb, M.D. is a practicing physician.  He previously served in senior positions at the Food and Drug Administration (FDA) and the Centers for Medicare & Medicaid Services (CMS). 

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