Nick Gillespie of Reason.com reports that a key target of the Affordable Care Act signed by President Obama in 2010 appears ambivalent about buying health insurance.  Specifically, the young and healthy have so far not been interested in buying health insurance.  However, it is still early and none of the insurance exchanges have been set up.  Plus, it is possible that they are waiting until the last minute before having to pay a fee for not being insured.

One of the key elements of health care reform was the individual mandate.  The individual mandaterequires most Americans to buy health insurance by 2014.  However, there are exemptions available to avoid paying the fee.  Examples include having a low income, being cost-prohibitive to buy health insurance; or not wanting health insurance for religious reasons.

Due to the number of potential exemptions and relatively low penalty compared to purchasing health insurance, it is possible that the estimates of the uninsured by 2014 might be underestimated.  Of the approximately 48 million uninsured before health care reform was passed, more than half remain uninsured.  That is far more than the 6 million estimated by the Congressional Budget Office.

This could potentially be a significant problem, especially if those opting out are the young and healthy.  The combination of increased regulations that will force insurance companies to provide more preventive care and enhanced benefits, along with less than expected enrollment into insurance plans that was expected to offset some of the costs of extra benefits, could prove troublesome.  That could mean the federal government will have to subsidize more of the cost in providing health care and drive up federal deficits.

Gillespie highlights some of the challenges in getting more people to sign up for health insurance.  For the young and healthy, they cite the cost and less likelihood of needing health care services because of their age.  Then there is the group described as the “passive and unengaged”, who procrastinate and do not take the time to assess the health care options available to them.  Both groups have little motivation to enroll and the penalty might not be significant enough to change their minds.

The above scenario is a prime example of adverse selection.  Adverse selection means that private health insurance companies are faced with covering less healthy, more expensive individuals, while the more healthy, less expensive individuals decide to not buy insurance.  In order to remain profitable and cover rising health care expenses, they will likely have to raise premiums.  While the penalties can offset some of the subsidies that will be used to boost the number of the uninsured, it might not be enough to offset the cost of enhanced benefits.

Another troubling consequence is that employers might face higher than expected costs in providing health insurance to their workers.  In fact, this uncertainty was pointed out by the Fed’s Beige Book as why a number of firms were reluctant to add to their payrolls.

Unfortunately, there remains many unknowns, so we will have to wait and see.

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