June 5, 2013

There’s been a big debate going on over the last two weeks about the Affordable Care Act and “young healthies” — people who don’t really need much health insurance, and who (conservatives have discovered) may pay more when the ACA fully kicks in.

As Jonathan Cohn and Sarah Kliff point out in detail, the point is severely overstated, because Obamacare won’t just tend to raise premiums for those who don’t use much insurance, but also gives subsidies for lots of people, so that the overall outcome for many is actually better than the old status quo.

That’s a very important point, but a reasonable response is that it doesn’t really matter very much whether or not the individual market is better or worse for young healthies; what matters, very much, is that they actually buy the insurance. If they don’t, then insurance companies will get clobbered because, under the new law, they’re not allowed to raise rates as much as they would like to on those who will use their insurance a lot — so they really need the “good” customers to make it all work.

Not only that, but it could be that the young healthies themselves want it to work. As Jonathan Chait notes, the “bros” in question (presumably male because young men use less health care than young women?)

may also contemplate the varying probabilities that one day you will be one or more of the following:
poor
sick
a son, husband, or father of somebody who is sick
no longer 25 years old

Well, yes. There’s a real collective action problem at the heart of this: it may well be a very good thing for young healthies for the ACA to work, but still a bad idea for any individual healthy, single, 25-year-old to buy insurance.

The whole point of universal health insurance is that the health care market breaks down in these cases. Both buyers and sellers want an insurance market that works for everyone, but the only people who want to buy insurance are those who think they’re going to get a good deal on it because they think they’ll use lots of benefits, while the only people the insurance companies want to sell to are those who they believe won’t use benefits. There are a number of ways to solve collective action problems, but one of the very best is  by taking the individual decision away. In a true collective action situation, that should leave everyone happy: it’s not that individuals don’t want to participate in the solution (since if everyone participates it’s good for them); it’s just that they don’t want to be the suckers who pay all the costs.

So what really matters here is whether the combination of insurance costs and subsidies, along with a very weak mandate, is enough to overcome that collective action problem.

It’s not crazy to think that “bros” might be perfectly happy if this all works out! After all, most young people pay payroll taxes for Medicare and Social Security without much complaint, presumably because they believe that over their lifetime it will all work out. But if you made those taxes voluntary, many of them would opt out. The difficulty with the ACA is that it’s trying to find enough incentives to get people to participate without using the heaviest form of collective force.

Will it work? We’ll just have to wait to see. But the problem isn’t whether “bros” are victims of the ACA; if the law really does work, then it works for everyone, and most certainly for the young healthies, too.