Shutdowns. Protests. Confusion. All of these have been created by the Affordable Care Act, but its impact on a highly indebted population could prove to be a burden that few are able to bear.
The Affordable Care Act (ACA), or Obamacare, aims to provide affordable healthcare for all Americans, but in doing this, it has created loopholes that will charge young citizens more for healthcare than they pay now. Many of these young citizens are college students and post graduates with mounting student loan debt.
Loans.org spoke with several financial and education experts to see what kind of underlying impact this healthcare initiative could have on our nation’s youth.
How the Program Works
Obamacare’s financial impact depends solely on the consumer. For some uninsured individuals who have been turned away due to pre-existing illnesses, it could open up a realm of healthcare that they never experienced. For others, it will further add to their monthly insurance premiums.
In the past, American citizens with insurance coverage either received it from the government, from their employers, or through a separate private plan. Obamacare will create a level field, likely costing healthy or young individuals more and sick or old individuals less.
Tim Teicher, president of OIO Inc , said that young and healthy individuals are absorbing the largest cost with healthcare reform. This is because of the Act’s non-discrimination policy of basing plans based on pre-existing conditions or age.
For instance, the anti-discriminatory policy on age sets limitations on the amount that an older person can pay in comparison to a younger person.
“A 64-year-old can not pay more than three times what a 21-year-old is charged for health insurance,” he said.
Teicher offered up this pricing example.
In today’s pre-Obamacare spectrum, a healthy 64-year-old would pay $420 monthly whereas a healthy 21-year-old would pay $70 monthly, creating a six-to-one difference. Under the new plan, health and age are less important. The same 64-year-old would pay $750 per month and the 21-year-old would pay $250 monthly.
“The insurance companies know that the 64-year-old is much more likely to use his or her insurance so they can not bring the elderly’s price down too much,” Teicher said. “The only way to meet the mandate of a maximum three-to-one pricing scale, is to bring the price for the young way up.”
Low-income families ineligible for Medicaid will likely not pay the full price for health insurance due to a subsidy. But this assistance is more difficult to attain for young and single people.
Teicher said that single consumers making over $30,000 per year will not receive any subsidy, therefore forcing them to pay a substantial monthly cost. A young person would have to make less than $19,000 to keep their insurance costs the same under Obamacare. For the student making over $30,000, their insurance premiums could increase upwards of 400 percent.
“The result is a significant financial burden that will impact student loan repayment,” he said.
Young adults may stay on their parents insurance plans up until the age of 26, providing their parents have coverage already.
Others will just avoid the coverage at all cost. Consumers are able to opt out of coverage, as long as they pay a fine. At first, the fine will be low, but it is likely to increase in coming years.
Joe Orsolini a certified financial planner and president of collegeaidplanners.com , said that most indebted students not covered by their family’s plan will do this. If something terrible happens they will eventually get insurance coverage.
He said this defeats the purpose of insurance and will make it more expensive for everyone that is contributing.
“Obamacare is going to be another struggle point for them,” Orsolini said. “They are the ones that are going to feel the bite of Obamacare being implemented.”
The Unlikely Link Between Student Loans and Healthcare
Student loans and healthcare might seem to be two distant topics, but in reality they are linked via the government.
The original ACA legislation forced banks out of the marketplace just like the federal government pushed banks out of the college financing space and became the sole distributor for federal student loans.
Navah Fuchs, co-founder of Angel Ed , sees correlations between industries that are overshadowed by the government.
She said there are similar characteristics seen in the ACA as the student loan bubble.
When federal student loans are distributed, they are divided based on general factors, such as a parent’s income, and do not factor the individual borrowers’ abilities to repay their debts. Consequently, certain federal loans do not fit certain student’s very well, but that does not stop those students from from gaining approval. In the end, borrowers who fail to repay their debts are covered by those who do.
But that plan is failing.
According to a recent report by the Department of Education, one in 10 student loan borrowers defaulted on their federal student loans in the first two years of their terms.
Instead of devising a new payment plan, the ACA modeled itself after this same method — where one group levels out the other. Healthy citizens pay more for premiums than required, so they can balance out the cost for unhealthy citizens.
“It is anticipated that the healthy folks will help pay for the sick folks,” Fuchs said.
Once consumers fully understand what they are paying for, it could create even more tension.
“Nothing causes unrest like paying for something you are not receiving,” she said.
Another potential correlation is the powerful drive for students to pursue higher education in the first place. Instead of promoting trade schools, high schools tell most students that college is the correct path, leaving them in a unfitting field and with insurmountable debts.
Fuchs said that pushing citizens into similar career paths and forcing them to take out similar insurance plans is “whitewashing an entire population.”
“[Obamacare is] forcing everyone into the same system where there needs to be diversity,” she said.
Glitches in the System
For a program that requires action from millions of U.S. citizens, Obamacare is off to a bad start. In it’s first week, the website experienced several site failures.
Orsolini was among the many consumers that tried and failed to apply for the new health insurance coverage.
Fuchs believes the large-scale reform lacked enough testing beforehand to clean up glitches and receive feedback. She believes that collective groups of employers with employee numbers ranging from several hundred to several thousand should have been given access to the site early, allowing the government to “get real world feedback and test it without forcing the political question.”
The turmoil that this Act caused has not helped the overall cause.
“Due to the political and emotional tension surrounding its roll-out, it is unlikely it will get the objective reform it so desperately needs,” she said.
Even though the program launch faced difficulties, it could hold at least one major silver-lining for young students.
With healthcare accessible to all, employees will not have to rely on their employer’s healthcare plans anymore, allowing them to access other plans if they want. Orsolini said this could add more flexibility for students that want to pursue entrepreneurship and non-profits that might not offer insurance coverage.
“They will no longer have to take a job for insurance purposes,” he said.
The Future of Healthcare
The program is still in its infancy, less than a week old, but it has already received varying levels of criticism. This negative feedback is not just from Republican conservatives as the news reports, but from a larger array of citizens and experts.
Fuchs is among these critics, and her predictions for Obamacare are grim. She believes that after two financial quarters, general unrest will occur among U.S. citizens. By the end of the year, she believes the system will “implode.”
“We are going to see it implode and the little guys are going to pay the price despite good intentions,” she said.
It all comes down to a fine balance and determining how much control the government should have over businesses and consumers.
“It’s good at protecting the small businesses. It’s not good at running businesses,” Fuchs said.