Young Adults and Kids
What the Left has said:
The Affordable Care Act –
- Allows all young people to stay covered under their parents’ plan until age 26.
- Offers tax credits to small businesses that may add health insurance benefits.
- Prohibits insurance companies from denying coverage to young people due to preexisting conditions.
But here’s the truth:
- The age-26 rule comes with great costs.
- Child-only policies are disappearing.
- The small business tax credits are a bait-and-switch.
- Young adults need jobs, and ObamaCare destroys jobs.
- The preexisting-condition mandate is antithetical to how insurance works.
- Young adults will suffer most in terms of increased health care costs.
- Young adults will suffer most due to the law's individual mandate.
- ObamaCare subjects young adults and kids to more and higher taxes.
Ask the Experts:
- Aaron Yelowitz, Adjunct Scholar at the Cato Institute
- Nicki Kurokawa Neily, Senior Fellow at the Independent Women’s Forum
- Edmund Haislmaier, Senior Research Fellow, Health Policy Studies, Heritage Foundation
ObamaCare will provide young adults the “opportunity” to stay on their parents’ coverage until they are 26-years old. But this isn’t paid for by free money or by the insurance fairy. Someone is going to have to bear the costs of continuing to cover young adults until age 26, all while ObamaCare drives premiums higher.
Many employers are likely to respond by dropping coverage for children all together. In November of 2010, the 1199 New York Local of the Service Employees International Union announced that they would do just this. The Local’s executive director of benefit and pension funds Mitra Behroozi wrote in a letter to members,
“In addition, new federal health-care reform legislation requires plans with dependent coverage to expand that coverage up to age 26. Our limited resources are already stretched as far as possible, and meeting this new requirement would be financially impossible.”(1)
Those employers who don’t drop dependent coverage outright are likely to pass their cost increases on to their employees. In a poll of employers by HR consulting company Towers Watson, 68% of employers said that they would raise employee contributions to offset higher healthcare costs. The same poll indicated employers have recently seen a large jump in dependents being added to their plans. (2)
Along the same lines, children who are dropped from their parents' plans will struggle to find child-only policies. Since the passage of ObamaCare, insurers have completely exited the market for child-only policies in at least 17 states. (3)
Young adults are unlikely see much benefit from the tax credits being offered to small businesses, because those tax credits incentivize small businesses to stay small and keep wages low. The tax credit is available to businesses employing up to 25 people and paying average annual wages below $50,000. In 2014, the tax credit will rise to 50% of premiums for qualifying businesses.(4) As these businesses grow the value of the tax credit to that business becomes less and less. (5)
Beyond this, the tax credits expire for small businesses in 2016, which means that if businesses can’t justify the cost of providing health benefits absent the tax credits, a tax credit that expires in only a few years isn’t going to convince them to take on the added cost. (6)
Over the past two years, the unemployment rate for young adults ha consistently been nearly double the average unemployment rate.(7) While young people seek jobs in today’s sluggish economy, they must compete with older individuals with more workplace experience. ObamaCare worsens their troubles by destroying jobs. According to Congressional Budget Office Director Doug Elmendorf, the tax increases and increased costs in ObamaCare could cause the loss of 800,000 jobs. (8)
That ObamaCare prohibits denying coverage because of a preexisting condition sounds wonderful, but there are two problems.
First, to a great extent, it is addressing a problem that doesn’t exist — certainly not to the extent the Left contends. Over 90% of insured Americans are on employer-provided group plans and cannot be denied new coverage, be subjected to preexisting condition exclusions, or be charged higher premiums because of their health status when switching to different coverage. (9)
And, where there is an issue, it’s not a very big one. Different rules apply to the individual, non-group insurance, which represents about 9.4% of the total market for health insurance. (10) But instead of addressing only this small problem, ObamaCare creates an incentive for all people to wait until they get sick before they purchase any health insurance. Because, after all, if you can’t be denied, why bother making all those expensive premium payments until you actually need coverage?
Then, to address this incentive problem entirely of their own making, ObamaCare unconstitutionally mandates that individuals purchase health insurance coverage. (11)
ObamaCare will essentially force young, healthy adults to subsidize the premiums of older, more sickly people through community rating and guaranteed issue provisions. Aaron Yelowitz of the Cato Institute explains how these two things work together to put young adults in a bad situation (12):
“Community rating means that you pay health insurance premiums not on the basis of
your own health characteristics (e.g., smoking status, drinking behavior, weight, sex, and age) but on the average characteristics of the community. Guaranteed issue means an insurer must issue policies to all applicants whether they are healthy or unhealthy. The combination of the two essentially creates a price-control scheme where healthy 25-year-olds pay the same premiums as 55-year-old smokers if they buy insurance in the individual market. Proponents emphasize the benefits to the 55-year-olds, but 25-year-olds pay far more under this scheme and many would forgo insurance entirely.”
And Nicki Kurokawa of the Independent Women’s Forum points to a practical example of what results guaranteed issue will have for young adults (13):
“In practice, this gives healthy people little incentive to buy insurance until they become ill, because they will not need to buy into a policy as a precautionary measure. Only nine states, including New York and New Jersey, have strict forms of community rating. New York adopted community rating and guaranteed issue in 1993. In the first year, an average healthy 55-year-old man saw his health-insurance premiums fall by 30 percent—while an average healthy 25-year-old saw a premium hike of more than 60 percent.33 According to the New York Insurance Department, 43,666 individuals dropped their health insurance in the first year, mostly young and healthy people—increasing the average age of policyholders by 3.5 years. As the pool grew sicker, premiums began to rise even for older New Yorkers who initially had their premiums cut. In the end, everyone ended up paying more.”
But forgoing insurance entirely will also be prohibited under ObamaCare’s individual mandate, so young adults are left to pick their poison – pay high premiums or break the law and pay the penalty.
Young adults are more likely to be uninsured than other age groups, and to report being in good health.(14) This group of people is the primary target of the individual mandate; they might otherwise choose not to purchase health insurance because they are generally healthy and don't want the added expense of a monthly premium. As unwise as this may be, young adults should be free to choose how to spend their own dollars.
In fact, the controversy over the individual mandate is about much more than health insurance. It is about the limits of government. Today's young adults will suffer most if the Supreme Court upholds this unconstitutional mandate, because the younger generations will live to see how our government takes more and more advantage of this new power to micromanage the economic decisions of American individuals and families.
Grover Norquist, president of Americans for Tax Reform, has outlined four major tax increases in the health law that will be particularly harmful to young adults and kids.(15) They are:
- The individual mandate excise tax
- The "medicine cabinet" tax
- The cap on Flexible Spending Accounts
- Changes to tax treatment of Health Savings Accounts