How much does Obamacare rip off young adults? We ran the numbers. Here are the results

Sticker shock by Shutterstock.com

Article Highlights

  • The health plans intentionally keep prices higher for young adults to subsidize older beneficiaries.

    Tweet This

  • Problem is, the health plans are too pricey to make economic sense for many young adults.

    Tweet This

  • Just how costly are the Obamacare plans for young beneficiaries? We ran the numbers.

    Tweet This

Obamacare is still struggling to sign up young people. In order to offset the high cost of the older, and probably less healthy people who are joining Obamacare plans, the White House must coerce a sufficient number of thirty-somethings to also join. Problem is, the health plans are too pricey to make economic sense for many young adults.

Just how costly are the Obamacare plans for young beneficiaries?

We ran the numbers. Here are our results:

Overall, the Federal government reports that 32% of on-exchange enrollees as of March 1st are under the age of 34. And many of these are teenagers who are part of family policies, not the young yuppies that Obamacare is fervently targeting. Earlier estimates showed only 20% of enrollees were between the ages 18 and 34.

The final number of young enrollees is well below the required cohort. Premiums will rise next year as a result of the adverse selection of older, and probably less healthy consumers. Why are young adults staying away? In one word, economics.

Obamacare is asking young adults to effectively subsidize the healthcare costs of older Americans. So far, Millennials are resisting this age-based transfer of wealth. Many are clearly opting instead to remain uninsured, or else they are buying cheaper health plans that don’t conform to Obamacare’s regulatory dictates.

My AEI colleague Kelly Funderburk and I looked at four states: Arizona, Illinois, Pennsylvania, and Texas. We then looked at a typical 30-year old at one of six different annual income brackets: $20,000 in annual income, $25K, $30K, $35K, $40K, and $45K. For each of the four states, we computed how much an Aetna Classic Silver plan would cost the same 30 year old at each of these six income bands. We looked at monthly premiums, deductibles, and out of pocket limits. We chose the Aetna plan because it is generally considered a higher quality insurance, operated across all of these markets, and represented a median price point among the offerings.

Look at our numbers (laid out in the charts below) and you’ll see why so many Millennials have Obamacare sticker shock. Someone, for example, earning $25K annually in Arizona will pay $2,424 in total monthly premiums for Obamacare (10% of their annual income) and still be stuck with a $4,000 deductible and a $5,200 cap on their out of pocket costs. The same person in Illinois will pay $3,576 in annual premiums, and in low cost Texas $2,460.

What about the same 30 year old who now earns $30,000 annually – the average salary for a pre-school teacher according to census data? In Arizona, their annual cost for carrying the Obamacare plan runs $2,772 and their deductible is $5,000. In Illinois, the same person will spend $4,092 for the same health plan, and also have a $5,000 deductible before their full health coverage kicks in.

Even someone earning $20K a year (the average salary for a full-time cashier) and eligible for Obamacare’s rich “cost sharing subsidies” is still going to find coverage pricey. In Pennsylvania, which was the lowest cost of the four states, the annual premium will run $1,620 for a plan that still leaves them with a $600 deductible. In Illinois, that same plan will cost $2,868 annually with the same $600 deductible. Premiums alone will eat up a whopping 14% of their annual income.

See the accompanying charts for a more detailed breakdown of our data. The numbers show why Obamacare has been such a tough sell among the young. These high prices are a direct consequence of the way the law was designed.

The health plans intentionally keep prices higher for young adults to subsidize older beneficiaries. Now, the White House is wringing its collective hands that the pool of applicants is skewing to older Americans. But this demographic distortion shouldn’t come as a surprise. It begs the question whether anyone in Washington did any market research before they launched this scheme, to see whether Millennials would show up?

Note: ”FPL” is the percent of Federal Poverty Level that each income band represents. Data is from healthcare.gov. While premium subsidies attach to all income ranges shown — up to 400% FPL, the actual premiums advertised on healthcare.gov for this model 30-year-old consumer do not decline through all of the corresponding income ranges. This is because subsidies are calculated off the second cheapest silver plan in each market, and since the Aetna plan is typically costlier than the cheapest alternative, the subsidies get exhausted sooner. Data is computed for the most populous county in each state.

 

You can follow Dr. Scott Gottlieb on Twitter @ScottGottliebMDYou can follow Dr. Gottlieb on Facebook for regular updates on his articles

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

Scott
Gottlieb

What's new on AEI

We still don't know how many people Obamacare enrolled
image The war on invisible poverty
image Cutting fat from the budget
image Speaker of the House John Boehner on resetting America’s economic foundation
AEI on Facebook
Events Calendar
  • 15
    MON
  • 16
    TUE
  • 17
    WED
  • 18
    THU
  • 19
    FRI
Tuesday, September 16, 2014 | 5:00 p.m. – 6:00 p.m.
The Constitution as political theory

Please join us for the third-annual Walter Berns Constitution Day Lecture as James Ceasar, Harry F. Byrd Professor of Politics at the University of Virginia, explores some of the Constitution’s most significant contributions to political theory, focusing on themes that have been largely unexamined in current scholarship.

Wednesday, September 17, 2014 | 8:10 a.m. – Thursday, September 18, 2014 | 1:30 p.m.
Third international conference on housing risk: New risk measures and their applications

We invite you to join us for this year’s international conference on housing risk — cosponsored by the Collateral Risk Network and AEI International Center on Housing Risk — which will focus on new mortgage and collateral risk measures and their applications.

Thursday, September 18, 2014 | 2:15 p.m. – 3:00 p.m.
Speaker of the House John Boehner on resetting America’s economic foundation

Please join us as Speaker John Boehner (R-OH) delivers his five-point policy vision to reset America’s economy.

Friday, September 19, 2014 | 9:15 a.m. – 11:00 a.m.
Reforming Medicare: What does the public think?

Please join us as a panel of distinguished experts explore the implications of the report and the consumer role in shaping the future of Medicare.

Event Registration is Closed
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.