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Two Types Of Uninsured

As of this week, we have officially entered a new phase of the rollout of the Affordable Care Act.

Up until now, the arguments have largely been ideological and based on educated guesses. Critics and supporters alike have had little in the way of objective data with which to make their points. Regular readers of this column know I fall firmly into the first camp, and have from the beginning. But applying logic to how the law would likely play out and seeing how it would actually play out are still not quite the same.

The data we have waited for has finally begun to arrive, however. Earlier this week, administration officials released the latest enrollment figures for health insurance purchased through the government exchanges. Unsurprisingly, the numbers show that older, and potentially sicker, Americans make up more than half of those who have enrolled in the first three months of the program. Administration officials reported that 55 percent of them were between the ages of 45 and 64. Only 24 percent were between 18 and 34.

Brendan Buck, a spokesman for House Speaker John Boehner, R-Ohio, said, “There’s no way to spin it: youth enrollment has been a bust so far,” The New York Times reported. The law’s detractors point out that, if the demographics don’t change, the law will quickly become financially unsustainable.

Even Obama administration officials could not do much beyond promise that they would become more aggressive about youth outreach efforts, and claim that the numbers were “solid, solid news” for the Affordable Care Act. The fact that people can sign up at all might be seen as a step in the right direction, after the disastrous fumble that was the HealthCare.gov launch in October. Still, these numbers underscore the law’s most fundamental problem.

There are two kinds of uninsured people: those who were uninsured because they could not get insurance due to a pre-existing condition, and those who did not want insurance at the price it was offered because they gave higher priority to other uses for their money.

Obamacare guaranteed that the first group would flock to its plans with the requirement that insurers not turn away those with pre-existing conditions or other risk factors. This might have worked if the second group, largely younger and healthier, had also flocked to the program to subsidize group one.

The problem is that the second group, for the most part, hasn’t shown up. The law’s penalties, as I have written before, are largely toothless. And as health insurance gets more expensive, even a larger penalty will remain substantially less than the cost of a year’s worth of premiums. Some people like their odds of remaining healthy; others are just healthy enough that, when they must choose between competing priorities, insurance is one that they let slide. The Affordable Care Act is not forcing them to do otherwise, and this will mean that insurance is only going to get more expensive.

It is also worth noting that nearly 80 percent of those who selected a plan qualified for federal subsidies. This suggests the converse; those who don’t qualify for subsidies largely stayed away. In addition, as The Washington Post’s Sarah Kliff observed, insurance rates are set on a state level, so the ratios state-by-state are even more important than the national figures.

Insurance works because a large pool of insured can affordably pay for the subset of those who actually get sick. If we know that insurers can’t turn us away when we are already ill, the incentive for paying while healthy declines. As fewer healthy people pay in, the cost goes up, making insurance even less attractive for those who don’t yet need it. The law is speeding up this process, and we can see it in action.

The administration will almost certainly try to delay the inevitable consequences of this “adverse selection,” the term actuaries use when insurance is bought only by those who are unusually likely to need it. Officials will doubtless pressure insurance companies not to raise premiums as soon, or by as much, as the companies would otherwise prefer. But eventually, insurance companies will have to raise those rates to survive. Either that, or the law will somehow have to change to get the voluntarily uninsured on board. Simply raising awareness among healthy young people - many of whom are grappling with student loan debt and an unemployment rate still substantially higher than that of the general population - will not be enough.

A large group of people don’t want this insurance, and it is unlikely they will want it more as it becomes more costly. The sick and the subsidized will keep signing up, while the healthy or unsubsidized stay away. This lopsided state of affairs can’t last. But if we don’t want it to end with the health insurance industry crumbling, we will have to arrange things so that the group who doesn’t want this insurance does not have any option other than to take it.

Larry M. Elkin is the founder and president of Palisades Hudson, and is based out of Palisades Hudson’s Fort Lauderdale, Florida headquarters. He wrote several of the chapters in the firm’s book, Looking Ahead: Life, Family, Wealth and Business After 55. His contributions include Chapter 1, “Looking Ahead When Youth Is Behind Us” and Chapter 4, “The Family Business."

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