"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Thursday, August 15, 2013

"The Wheels Are Coming Off of Health Care Reform" II

Yesterday I commented on a blog piece about Obamacare that individuals are rational actors who, when given a choice between a small penalty for not having insurance and a large bill for buying insurance, will choose the least costly alternative, especially when the entire premise of Obamacare is that you can't be turned down for coverage if you get sick or injured.   They'd be stupid not to opt for paying the penalty because there is no downside risk.  

Put differently, think of it this way:

1. If you buy health insurance under Obamacare, you're insured against the risk you'll get sick.

2. If you don't buy health insurance under Obamacare, you're still insured against the risk you'll get sick, because you can always buy insurance when you do get sick.

3. Q.E.D.  Why buy health insurance now?

Hard to imagine that the Obama Administration didn't realize this simple logic and actually plan for it, i.e., plan for the scheme to crash when younger, healthier individuals refuse to buy in.

Anyway, here's a piece that makes essentially the same point:

Nearly 4 million young people will be much better off financially if they refuse to buy an ObamaCare insurance policy and instead pay the fine for going without coverage next year, according to a study released Thursday by the National Center for Public Policy Research.
The study found that 3.7 million childless single people age 18-34 would save at least $500 if they didn't buy insurance and instead paid the tax penalty next year. Of those, more than 3 million would save at least $1,000. 
That's despite the heavy taxpayer subsidies many of these young people would be eligible to get. The ObamaCare insurance exchanges provide tax credits to offset the cost of insurance to those with incomes up to 400% of the poverty rate. The NCPPR study used Census data on income and insurance coverage in this age group, along with the Kaiser Family Foundation's subsidy calculator to arrive at its results. 
These findings are troubling because they point to what could be a fatal flaw of ObamaCare if the administration can't convince enough of these "young invincibles" to buy coverage. 
"This age group must buy insurance in the exchanges to cross-subsidize people who are older and sicker," explained David Hogberg, a policy analyst at the conservative National Center. "Without them, the exchange will enter a 'death spiral' where only the older and sicker participate and the price of premiums increases precipitously." 
Most of those who stand to gain by not buying ObamaCare insurance are currently uninsured today, said Hogberg, who used to work for Investor's Business Daily. "Getting these people to shell out $500 or $1,000 of their own after-tax income is going to be a difficult task, to say the least," he noted.

Ya think?

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