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Going, Going, Gone

The arguments that justified Obama­care are already being discredited. Here’s how to replace it.

Sep 2, 2013, Vol. 18, No. 48 • By YUVAL LEVIN
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In January, a study by Kurt Giesa and Chris Carlson in the magazine of the American Academy of Actuaries estimated that 80 percent of Americans below the age of 30 in the individual market would find themselves with higher premiums next year than this year, even after subsidies. Early data from the states suggest this estimate may not be far off the mark. As the Manhattan Institute’s Avik Roy has found, in California, “if you’re a healthy, non-smoking 25-year-old, and you make more than $18,558, your health insurance will cost more under Obamacare—possibly a lot more.” That means more than 90 percent of such younger Californians who are eligible for subsidies would still pay more after those subsidies next year than they would pay for coverage now. 

Obamacare’s defenders tend to respond to such figures by arguing that it would mostly be such relatively young and healthy people who faced higher costs even after subsidies, while the new system would surely reduce costs for older and sicker Americans—especially those with pre-existing conditions who now find it difficult to obtain any affordable coverage. As the Washington Post’s Ezra Klein put it on MSNBC in June, “at its core, health insurance, what we’re doing here, is redistributing from the healthy to the sick and from the young to the old, and we are putting in big subsidies to help people who are poor.” To focus on the higher costs for the young and healthy, such Obamacare champions contend, is to neglect the problems of the sick.

Clearly, one of the many things Obamacare is designed to do is to make it cheaper and easier for sicker and older people to get health insurance. This is a worthy and important goal. Any meaningful reform of our health care system would have to offer a serious solution to the plight of people with preexisting conditions, and Obamacare’s supporters are right to insist that this is generally a more significant moral and social problem than the plight of the young and healthy. 

But consider the solution they propose. Obamacare’s “redistributing from the healthy to the sick and from the young to the old” happens for the most part not through government taxing and spending, or through the sorts of subsidized high-risk pool arrangements that conservatives propose, but through a redesigned insurance system in which the cost of risk is massively redistributed. The young and healthy are expected to enable that system to function in two ways: They will pay significantly higher rates than they do now, and more of them will buy coverage. But there is an obvious contradiction between these two expectations. If the cost of something goes up, why would more people buy it? 

In fact, the problem is even worse than that. Obamacare doesn’t just increase the cost of coverage for the young and healthy, it also reduces the value of insurance for them. The law’s insurance rules mean that a sick person can buy insurance for essentially the same price as a healthy person, so healthy people know that if they get sick they will never be more than one enrollment period away from being able to buy coverage for the same price they would pay while they are healthy. That doesn’t mean they will always be able to get coverage as soon as they need it (if they become sick or injured outside the annual enrollment period, they will have to wait, perhaps even a few months, until the next one), but it still means a major health setback while uninsured will involve far less risk than it does today. 

Insurance exists to offer protection against the risk of a medical calamity becoming a financial calamity, and part of its appeal to the healthy has always been that waiting to buy coverage means running the risk that poor health will make such coverage unaffordable later. Coverage rules that dramatically reduce that risk for people who are healthy therefore make insurance less valuable for them. 

So young and healthy people who now choose not to buy even the cheapest available insurance plans are expected next year to buy insurance that is both more expensive and less valuable, and the entire system depends on their choosing to do so. To focus on the financial incentives they will confront is not to neglect the system’s redistributive purpose—if the young and healthy stay out, older and sicker Americans will face higher costs and less access to coverage, and the system will fail by its defenders’ own standards. Its mistreatment of the young and healthy is therefore actually a huge problem for the law, and points to the core of the new system’s economic irrationality, or rather to its failure to contend with how people understand their economic options. 

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