Individual mandates cause headaches.

As the Obama Administration’s allies are gearing up to spend $125 million over the next five years to sell the health overhaul law to the public, including seniors, there has been a noticeable vacuum in the discussion over the impact on younger adults. This topic was in the spotlight at a recent event sponsored by the CATO Institute: “How Will Obamacare Affect Young Adults?”

While the President received one of the largest margins of support from 18-29 year old voters during the 2008 election, there is growing skepticism over the President’s handling of health care and the final version of the bill signed into law. Under the overhaul, Michael Cannon, Director of Health Policy Studies at the Cato Institute, says that flawed policies are used to fix other flawed policies. For example, for price controls to work, an individual mandate is required; but for a mandate to work, more taxpayer subsidies are necessary. But what happens when the central planners’ calibrations are off?  Younger and poorer adults who stay in the health insurance market will be cross-subsidizing the premiums of older and wealthier Americans not yet eligible for Medicare. From the “have nots” to the “haves”—a new social policy.

With insurance price controls set by regulation, premiums for young adults will increase. Then what? They will find it financially advantageous to drop coverage and pay the modest mandatory government fine instead. Multiple reports have estimated anywhere from 17 to 50 percent premium increases for young adults. Of course, as noted, these are the same individuals making the least amount of money in their career and struggling financially. CATO estimates that single young adults could save up to $3,000 a year by dropping coverage and for a young family, $8,000 for a family of four. If younger and healthier individuals leave the coverage pool, only the older, sicker, and more expensive patients will be left. Then what?  Insurers will have no choice but to raise premiums to cover higher-benefit older adults, forcing even more individuals to drop coverage. This creates a “death spiral” of premium increases. President Obama energized a generation to vote for “Change.” Pricing them out of quality health insurance is not what they might have anticipated.

In an attempt to “fix” this problem, Congress required insurance companies to allow younger adults to stay on their parent’s coverage until the age of 26. But, there’s a catch, here, too: this only applies if their parents are offered employer-based insurance that covers dependents. This design excludes many young people, and establishes a cliff once you reach 27. Regardless, all younger adults will face a job market in which companies are struggling with increased health care costs and are less likely to hire. For more information on this topic, see the Heritage Foundation’s report “How Health Care Reform Will Affect Young Adults”, by analysts Rea Hederman, Jr. and Paul Winfree.

Co-authored by Gregg Girvan.