Don’t worry, kids. Obamacare is a good deal.

February 11, 2013

Health insurance moves money from the healthy to the sick. As it happens, the young are less likely to be sick than the old, and so, in a given year, in a very simple health insurance scheme, they typically get a worse deal than the old. That's the basis for Ben Smith's article arguing that Obamacare "screws" the young. But it's a shaky basis.


Don't worry, kids. This isn't going to hurt. (Mikhail Mordasov -- Getty Images)

The obvious problem, as others have pointed out, being "young" is an unusual demographic category in that it's temporary. At the moment, I'm white, and barring some truly unforeseen circumstances, I'm going to remain white for some time. Conversely, while I'm young at the moment, I fully expect to get older. A policy that's a bad deal for me now might be a good deal for me soon. Smith waves this away by saying he's talking about "the current young," but that's an odd category, to say the least. By his logic, young workers should be out in the streets protesting 401(k)s.

The less obvious problem with Smith's piece is that it focuses on only two provisions of the law: The insurance mandate and the limits on age discrimination. On their own, both policies redistribute from the young to the old. But they're not on their own, or even close to it. And many of the other provisions -- none of which he mentions -- in the law hugely subsidize the young.

Perhaps the most obvious and overwhelming form of redistribution in the law is from the insured to the uninsured. And young people are much more likely to be uninsured:

Behind that graph is a broader reality: Universal health-care systems in general, and Obamacare in particular, move money from the rich to the poor. The program fully subsidizes insurance for anyone making less than 133 percent of the poverty line and partially subsidizes it up until about 300 percent of the poverty line. On the other side, Obamacare pays for itself in part by taxing the rich. Both parts of the bill effectively redistribute from older Americans to younger ones.

This graph tracks median income for heads of households at various ages. As you can see, the young tend to be quite a bit poorer than their older brethren.

I've left out the over-65 set on that graph as many of them are retired and living off savings rather than income, but just so you know the numbers, median 2011 income for Americans over age 65 was $33,118 -- which is still higher than for folks between 15 and 24.

Speaking of the over-65 set, they're actually taking a hit in Obamacare. If you followed the 2012 election, you might remember this ad:

"Obama has cut $716 billion from Medicare," the announcer says. "Why? To pay for Obamacare. So now the money you paid for your guaranteed health care is going to a massive new program that's not for you." So who's it for? People younger than 65, of course. This makes Obamacare an unusual health reform in that it has an explicit mechanism for redistributing from the old to the young.

A less noticed form of redistribution in Obamacare is from people who get health care from their employers to people who get health care on the individual market or don't get it at all. The excise tax on high value, employer-provided health insurance is the most explicit mechanism for this redistribution, but the subsidies for people who don't get affordable health insurance from their employers also play a role, and the whole point of the exchanges is to create a viable non-employer based market. As it happens, this also benefits the young, as they're much less likely to work for employers who offer good health benefits:

You can go on like this, of course. To my knowledge, no one has done a full distributional analysis of age and the Affordable Care Act. It would be a very, very difficult thing to estimate. But even a quick cut at one reveals a far more complicated relationship between the Affordable Care Act and both the young and the old than Smith's piece lets on.

All that said, this kind of raw, aggregate analysis makes more sense when it comes to tax policy than health insurance. You don't buy health insurance because you're hoping to get out more than you paid in. That would mean, in essence, hoping to get terribly sick so you could get the satisfaction of running up high medical bills. You buy it because, if something awful happens, it protects you.

The point of the Affordable Care Act for the young and the old, for the insured and the uninsured, is that it protects you. A young person making a rational calculation today to go without insurance and making a rational calculation next year to just pay the individual mandate and remain without insurance is going to be thankful indeed for the Affordable Care Act if they're unexpectedly diagnosed with diabetes. An IBM programmer who gets great insurance through his job now might see little to gain in the law, but that will change if he loses his job in three years. We all hope that we won't need the Affordable Care Act, or health insurance more generally. But it's there in case we do.

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Neil Irwin · February 11, 2013