If the ObamaCare health insurance exchanges are to function properly, it is crucial that a substantial number of people ages 18-34 join them. This age group that is young and relatively healthy must purchase health insurance on the exchanges in order to “cross-subsidize” people who are older and sicker. Without the young and healthy, the exchanges will enter a “death spiral” where only the older and sicker participate and price of insurance premiums will increase precipitously.
This study finds that in 2014 many single people aged 18-34 who do not have children will have a substantial financial incentive to forego insurance on the exchanges and instead pay the individual mandate penalty of $95 or one percent of income. About 3.7 million of those ages 18-34 will be at least $500 better off if they forgo insurance and pay the penalty. More than 3 million will be $1,000 better off if they go the same route. This raises the likelihood that an insufficient number of young and healthy people will participate in the exchanges, thereby leading to a death spiral.