The political travails of the Affordable Care Act — aka Obamacare — continue, as witnessed by the furor surrounding Health and Human Services Secretary Kathleen Sebelius‘ attempts to solicit funds to pay for its implementation. Politics do garner the bulk of the media attention, and the public may think that partisan battles will determine the law’s future. A recent poll sponsored by the American Action Forum, though, shows that the nuts and bolts of consumer decision-making may be its real Achilles heel.
At the heart of Obamacare is the goal of expanded health insurance coverage, and the law as originally passed envisioned coverage for an additional 30 million or so Americans. About one-half of these would purchase their insurance in the so-called “exchanges” — state-based marketplaces where approved coverage will be for sale for individuals and small businesses to purchase. An elaborate system of government subsidies would assist insurance for those making up to $89,000. Of course, as was settled by the Supreme Court decision, those who do not purchase insurance will be subject to a penalty, or extra tax.
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Younger Americans are central to this vision of broader insurance coverage. First, they are supposed to participate in insurance coverage, and the mandate and penalty are there to make sure that this comes to fruition. Second, by having the young in the insurance pool with their low health care costs, the insurance offered in the exchanges would be more attractive and affordable to older and sicker Americans. In effect, young Americans are supposed to be both key participants and the piggy bank of the expansion effort.
Unfortunately, health insurance is a product, not a social vision. What we know to be true thanks to ample survey and analytic research is that in 2014, Obamacare will cause insurance premiums to rise sharply for the healthy and young. When it comes to products, Americans aged 18 to 40 act like consumers of all ages everywhere: They have a price point, and when the price gets too high, they get busy making changes.
Evidence of these changes was gathered in late March and early April of this year, when the American Action Forum sponsored the first national poll of this demographic, specifically testing what effects various premium increases would have on consumers’ willingness to purchase coverage. Respondents were those who already purchase insurance and had very specific information regarding their monthly premiums and the penalty they would pay if they failed to continue to buy insurance. They were also provided with the dollars they would have to fork over if premiums rose 10 percent, 20 percent or 30 percent.
The results are illuminating. In this group of current insurance purchasers, only 83 percent will still purchase if premiums rise 10 percent; 65 percent, if premiums rise 20 percent; and only 55 percent, if premiums rise 30 percent. The economic lesson is simple: As premiums rise, eventually, some consumers reach a price point at which they simply stop buying health insurance.
The policy lesson is twofold. First, a law intended to expand coverage will to some extent do exactly the opposite. Second, young Americans are exceedingly rational. If premiums rise 10 percent, 7 percent of those polled would pay the penalty, but then turn around and buy insurance (as the law dictates they must be permitted to do) if they got sick. The fraction rises to 11 percent and 20 percent for the larger premium hikes, respectively.
Choosing the penalty over insurance, or conveniently buying insurance (from the ambulance) just when it is needed, has been caricatured as responses only dreamed up by opponents of Obamacare. Not so, as it turns out. While the respondents are price-conscious consumers, they are not anti-Obamacare.
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The poll shows a response to the health care law split more or less right down the middle: 29 percent viewing it favorably, 33 percent unfavorably, and 38 percent “half-and-half.” Within the law, some features are viewed favorably (coverage for pre-existing conditions is a positive for 68 percent), while others are frowned on (55 percent have a negative view of the individual mandate and penalty.)
Obamacare is a controversial law whose provisions have received a mixed public reception. These results are echoed by the sentiments of the 18- to 40 year-olds polled by the American Action Forum. Obamacare is intended to expand insurance coverage by mandating that those same young Americans form a lower-cost insurance pool. This group, however, powerfully undercuts this goal. Behaving like all price-conscious consumers, young Americans will drop their insurance in the face of sharp premium increases.
Douglas Holtz-Eakin is president of the American Action Forum and former director of the Congressional Budget Office.
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