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November 22, 2013
The Risks for Gen-Y or Z of Going without Health Insurance
 
Gen-Y or Z is now facing the financial decision: Buy the insurance, or simply pay the penalty and take your chances? For many, the issue is one of, how much is this going to cost me? Especially if you’re facing a tight budget.
 
In a well-reasoned article, The New York Times' Tara Siegel Bernard lays out all the issues for making that decision. There’s no question that it’s a huge gamble for most of the younger generation. So plenty of people are going to consider the odds. Here’s the information Bernard that you need to know.
 
What percentage of the population actually racks up the medical bills?
It’s a small percent. Furthermore, according to the Kaiser Family Foundation, there are no significant distinctions between the young or the old. If the person was between 25 and 34 years old (insured or not), there was a 5% chance of a bill exceeding $27,000 (2011), and a 10% chance of the bill exceeding $13,000.

What will that risk mean to your income?
Here are the salary comparisons from the National Center for Educational Statistics.
 
For young adults ages 25–34 who worked full time throughout a full year, higher educational attainment was associated with higher median earnings. For example, young adults with a bachelor’s degree consistently had higher median earnings than those with less education. During this period, this pattern also held across sex and selected racial/ethnic subgroups (White, Black, Hispanic, and Asian).
 
In 2011, the median of earnings for young adults with a bachelor’s degree was $45,000, while the median was $22,900 for those without a high school diploma or its equivalent, $30,000 for those with a high school diploma or its equivalent, and $37,000 for those with an associate’s degree.
 
It’s pretty clear that the real point of insurance is to protect against catastrophic medical events, which few in that group could afford to pay. That’s especially problematic when Gen-Y and Z are still paying off student loans.
 
Insurance or penalty? 
The simple comparison makes it clear that the penalty is less — far less than insurance. If, that is, the young person can manage to avoid serious illness or injury. But landing in the hospital, even for just a short time, means you’ll lay out $11,600 a night for medical or surgical stay.

The penalty differential. 
In the 2014 tax year, individuals pay whichever is more: $95 or 1 percent of the portion of their modified adjusted gross income that exceeds the federal income tax filing threshold of $10,150. So in 2014, an uninsured person with an income of $50,000 would pay a penalty of about $400. Someone earning $100,000 would pay about $900. The fine rises each year until it hits $695 per adult or 2.5 percent of income in 2016, according to CCH, a tax and accounting service.
 
The insurance differential. If a young man — 28 to 30 years old — bought a typical silver plan on an exchange, he would pay roughly $2,800 in annual premiums, on average, according to the Kaiser Family Foundation’s subsidy calculator. But premiums vary: In New York City, for instance, he would pay more than $4,600 in premiums. (Younger people tend to pay more in New York State because premiums are not adjusted for age; in other states, older people can pay as much as three times as much as younger people.)
 
There are a number of enlightening issues.

The cheapest plans will cover essential services that will save people money over the long run. For example, if the person has insurance, he or she is far less likely to postpone medical services. Over the long term, that saves money for both the insurer and the insured.
 
Other experts believe that young people are likely to buy insurance, rather than skip it and pay the penalty, if they can find an affordable option. Three million more young people are staying on their policies until age 26 as a result of the ACA.

Many people, including young people, will qualify for federal subsidies to pay for a large share or ALL of their insurance. And a large share of young people will have salaries so low that they will not have to pay the penalty ($10,000 for individuals and $20,000 for couples). Medicaid will pick up the slack.
 
One consulting actuary calculates that there is a 10% chance of facing more than $30,000 in medical costs, including drugs. That’s a pretty big risk, for my money. Or, as the actuary says, “a 10% risk is a big possibility.”
 
Faced with the risks of medical charges on a Gen-Yer and her/spouse as a result of low income, some families are funding the insurance for them. Obviously, that’s for the fortunate few. But the option of protecting the future for the kids whose parents are in the top 20% makes sense. For families in the top, say 10 or 20% of income, insurance is a given as much as autos and home. 
 
In sum, the Urban Institute argues that health insurance is important for several reasons. Uninsured people receive less medical care and less timely care, they have worse health outcomes, and lack of insurance is a fiscal burden for them and their families. Moreover, the benefits of expanding coverage outweigh the costs for added services. Safety-net care from hospitals and clinics improves access to care but does not fully substitute for health insurance. These findings are supported by much research…

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Dan Erwin, PhD, is a specialist in performance improvement. Over more than 25 years he has coached nearly 500 officers, executives, and managers from top American corporations by means of his very original, cutting-edge development program. Shockingly, you can't Google his name prior to 2008 — due to the demands of his clients. He blogs at danerwin.typepad.com, and tweets at twitter.com/danerwin.

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