Rising Costs for Young People is a Feature, Not a Bug, of Obamacare

With every new day comes another example of how Obamacare hurts young people by dramatically raising the cost of their insurance. The latest evidence comes from the Ohio Department of Insurance, which announced on Thursday that the average individual-market health insurance premium in 2014 will increase by 88 percent compared to 2013.

Here’s Avik Roy, writing for Forbes, to explain the reason behind the “rate shock”:

“What are the drivers of the increase? According to Milliman, the two biggest drivers are (1) risk pool composition changes, such as forcing the young to subsidize the old, and the healthy to subsidize the sick; and (2) Obamacare’s required expansion of insurance benefits, particularly its mandated reductions in deductibles and co-pays.

This is a significant concept to understand. Some people have the impression that the main reason that rates are going up under Obamacare is because of the law’s requirement that insurers cover people with pre-existing conditions. But that accounts for only a fraction – around a quarter – of the rate hike. The rest comes from all the other things that Obamacare does, such as forcing people to buy richer insurance benefits; to buy products with all sorts of add-ons they might not need; to pay Obamacare’s premium tax; and to pay a lot more, if they’re young, to subsidize older individuals.”

In other words, higher premium rates aren’t a bug, they’re a feature of Obama’s health care plan. It is the inevitable result of adding sicker people to the risk pool, trying to tamp down the adverse selection spiral by requiring younger, healthier people purchase insurance, and then putting an arbitrary cap on top-end costs. “It’s called ‘rate shock,’ but it’s not shocking to people who understand the economics of health insurance,” says Roy.

So what to make of Democrats’ earlier promises that Obamacare would not raise premiums costs?

“If you already have health insurance, the only thing that will change for you under this plan is the amount of money you will spend on premiums,” Obama said in 2007 while running for President. “That will be less.” It was a constant refrain heard throughout the campaign, even going so far as to peg the average family savings at $2,500.

And as Buzzfeed notes, the pandering didn’t stop once Obama stepped foot into the White House. That May he told C-SPAN that if health groups committed to reducing costs – “we up saving $2 trillion . . . a lot of those savings can go back into the pockets of American consumers in the form of lower premiums.”

Pelosi even got in on the act, saying as recently as July 2012 that because of Obamacare “everybody will have lower rates.”

In the face of overwhelming real-world evidence that rates are skyrocketing, Democrats are changing their argument. Now, they say, it’s a good thing that rates are going higher because that means that people are getting more comprehensive coverage. But this argument also misses the point for two reasons.

Firstly, Obamacare is balanced on a razor’s edge. Regardless of how fair the bill’s proponents claim the new system to be, none of that matters if it doesn’t work.

It’s a complex mess of weights (get young people to purchase insurance to subsidize older people) and counterweights (include an individual mandate with a tax penalty to insure they purchase insurance). And if any one of them fails, the system collapses into a classic insurance death spiral. As rates go up the number of young people willing to purchase insurance will go down as more of them will simply choose to pay a penalty, and then wait to get a last-minute plan when they get sick. So simply put: Obamcare won’t work if premium costs are high and keep rising.

Second, Democrats attempt to allay the first fear by talking about the generous subsidies that Obamacare will offer. Unfortunately, this too fails under closer analysis. Avik Roy crunched the numbers and found that even with subsidies the “majority of participants in Obamacare’s exchanges will still pay more.”

And even if they didn’t, does it really make sense to have a system that doubles the cost of insurance for most young people, then attempts to mitigate those costs through subsidies paid for by tax dollars? In other words, the bill raises health care premiums then raises taxes; and liberals want to call this a good system?

Of course, I’m sure the pro-Obamacare arguments will continue to adapt in the face of evidence that their bill is economically and actuarially flawed. Which leads me to believe that the main, perhaps only benefit, of the bill has been to keep health policy bloggers employed. But that seems a poor excuse to dig into the already-shallow pockets of young people.