ObamaCare Subsidy Structure Pits Young v. Old, New Study Says

by Judy Kent

Washington, DC - Subsidies on the ObamaCare exchanges will favor older, sicker people over the young and healthy, likely leading to an insurance "death spiral," says a just released study, "ObamaCare Exchanges: Just Because You Are Eligible for a Subsidy Doesn't Mean You Will Qualify for One."

The study was written for the National Center for Public Policy Research by David Hogberg, Ph.D., senior fellow for health care policy at the National Center, and Sean Parnell, president of Impact Policy Management, a public policy consulting firm.

"Officially, the ObamaCare Exchanges are supposed to give a subsidy to everyone making 400 percent of the federal poverty level or below," said Dr. Hogberg, "and that's what the public is being told. Yet we've found that for most people age 18-34, the subsidies disappear well before that 400 percent level."

The study examined the premium data of the exchange of 14 states and Washington, D.C. In ten of the exchanges, subsidies disappeared for everyone age 18-34 before they reached the 300 percent federal poverty level (FPL), about $34,470 annually for a single person.

"This is critical information because it tells us that a population that is crucial to the proper functioning of the ObamaCare exchanges, those 18-34, will be paying full price for their premiums," said Dr. Hogberg. "This will give them considerable incentive to forego insurance and just pay the individual mandate fine."

But, Dr. Hogberg says, the picture that emerges for those in their 50s and 60s is quite different. The study found that in most exchanges, the subsidies extend up to the 400 percent FPL ($45,960) level beginning at age 52.

"This means that, on balance, insurance on the exchanges is a much better deal for older and sicker people," said Parnell. "An insurance system that discourages young people from buying coverage but encourages older people is likely headed for a death spiral.

"A death spiral occurs when younger and healthier people needed to stabilize the risk pool don't sign up for insurance," continued Parnell. "Premiums for those who do purchase insurance will climb. The higher premiums encourage even more young and healthy people to drop insurance as premiums become less affordable. This eventually leads to a rising number of uninsured while those who remain insured are only the sickest, with the highest healthcare costs."

Finally, the study extended the analysis of the 15 exchanges to the nation as a whole and found that about 1,185,881 18-34-year-olds who are single, childless and under 400 percent FPL will not qualify for an exchange subsidy. Including in the analysis those 18-34-year-olds whose incomes exceed 400 percent FPL show about 1,961,990 will not receive subsidies.

The paper is available online at https://www.nationalcenter.org/NPA653.html

Suggested Discussion Topics:
 

1. Why does it matter that exchange subsides favor the older and sicker over the younger and healthier? What effect will that have?

2. When you talk of this leading to a "death spiral," what do mean and what are the likely consequences?

3. How does the formula for subsidies on the exchanges work, and why does it lead to many younger people under 400 percent of the federal poverty level not receive subsidies?

4. In your last study you noted that about 6 million of those 18-34 who are single and childless would be eligible for the ObamaCare exchanges. If at most 1.9 million opt out because they have to pay full price for insurance because they get no subsidy, doesn't that still leave enough to make the ObamaCare exchanges work?

In Dr. Hogberg's most recent prior study, August 2013's "Why The 'Young Invincibles' Won't Participate In The ObamaCare Exchanges and Why It Matters," he found that, despite both the subsidies and individual mandate, about 3.7 million 18-34-year-olds would save at least $500 by forging insurance and paying the fine. Of that group, about 3 million would save at least $1,000.

 

David Hogberg, Ph.D., is a health care policy analyst for the National Center for Public Policy Research. Previously, Dr. Hogberg was a Washington Correspondent for Investor's Business Daily, specializing in health care and Medicare. Prior to his employment at IBD, he worked as a policy analyst studying health care and other issues for various think-tanks, including the National Center for Public Policy Research, and for the office of U.S. Representative Jeff Fortenberry. Dr. Hogberg holds a Ph.D. in political science from the University of Iowa. He is currently working on a book entitled "Medicare's Victims: How The U.S. Government's Largest Health Care System Harms Patients And Impairs Physicians."

Sean Parnell is a public policy consultant in Alexandria, Virginia, who conducts original research and analysis as well as providing government relations and strategic consulting services. He serves as adjunct scholar in health care policy for the Rhode Island Center for Freedom & Prosperity and is working on a book entitled The Self-Pay Patient, a resource for uninsured patients as well as those with high-deductible health plans. He also runs a blog called The Self-Pay Patient and previously served as president of the Center for Competitive Politics and as vice president at the Heartland Institute.