Buying insurance doesn't always feel like it makes economic sense, especially for young healthy people. So why are they still willing to pay?
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When President Obama was pitching the Affordable Care Act, one of his sells was that in some cases you could get health coverage for what you spend on your cell phone bill. The difference, of course, is that most people actually use their cell phones every day. Some people don't use health insurance at all in a given year, especially the young and healthy. So, why did so many of them sign up in the end? David Kestenbaum with our Planet Money team got some answers by turning to a state that has some experience with getting young people onboard.
DAVID KESTENBAUM, BYLINE: In 2007, Massachusetts was rolling out what in many ways was the inspiration for the Affordable Care Act. It was called the Health Connector. And it was a chance for all those uninsured people to finally get coverage. People earning below the poverty line could get coverage for free. But if you earned a bit more - say you were just out of college - if you earned a bit more you had to pay part of the bill. And these people, well, they weren't exactly lining up. Jonathan Gruber is an economist at MIT who helped design the program.
JOHNATHAN GRUBER: So that very first month, all together there were 123 people enrolled.
KESTENBAUM: Which is a small number.
GRUBER: Which is a very small number. Almost nobody came in the first month.
KESTENBAUM: This group was going to take some persuading. And what better way to convince someone than with an ad. There was one ad in particular that ran all the time. It was impossible to miss, especially if you watched a Red Sox game that summer. It appeared on that big screen in the stadium.
(SOUNDBITE OF AN AD)
GABRIEL FIELD: You think it's not going to happen to you? Well, take it from me, it can.
JOAN FALLON: So it's a TV ad.
KESTENBAUM: This is Joan Fallon. She was in charge of PR.
FALLON: And it's a young man who is sitting in his kitchen and he has a broken arm.
KESTENBAUM: The guy has got his arm in a cast.
FALLON: And he's saying he's grateful that he signed up for health insurance before he broke his arm, because if he hadn't he would be out a lot of money.
KESTENBAUM: And is that a true story?
FALLON: No, he was an actor.
(SOUNDBITE OF AN AD)
FIELD: Hey, don't wait 'til it's too late.
(SOUNDBITE OF MUSIC)
KESTENBAUM: This is you in broken arm with a kitchen?
FIELD: Yup, that's it.
KESTENBAUM: I called up the actor. His name is Gabriel Field.
Did you really have a broken arm?
FIELD: Nope. Nope. But for the audition, I went in with a, you know, a sling which I think totally helped.
FIELD: Because you automatically have sympathy for someone whose got a broken arm.
KESTENBAUM: Gabriel, it turns out though, was exactly the person the ad was targeting. Young, healthy and at the moment they shot the ad uninsured. You could call him a young invincible. But really, it wasn't that he felt invincible. He was just doing the math.
FIELD: Technically, I could afford it. You know, it wasn't fully beyond my means. But strategically, you know, economically, it didn't seem like it was necessarily the best choice, because it was constantly paying out a lot of money for something that I may or may not use.
KESTENBAUM: A more statistically true ad would show a young guy in a kitchen writing out a check for health insurance, and then not needing a doctor.
The health insurance sign-up folks though had one other economic tool in their arsenal that, together with that ad, made a powerful package. And that tool was the mandate: If people did not sign up, they were going to have to pay a penalty. As a reminder, people got a warning in the mail.
Again, Joan Fallon.
FALLON: The postcard said: Urgent message to Massachusetts income tax filers.
KESTENBAUM: It laid out that there would be a penalty of $218 that year and that the penalty was going to go up the next. If you think about it, a fine of $218 is pretty small. But by the end of that first year, 2007, the young and the healthy, they were signing up. And they continued to sign up the next year and the next.
FALLON: I can't say that we got every young person enrolled in health insurance. But we came pretty close.
KESTENBAUM: It's unclear exactly what pushed these people to sign up. But Jonathan Gruber, the economist, has a theory. The math hadn't really changed. If you weren't worried about being sick, it would be cheaper to pay the fine than fork over what could be thousands of dollars for insurance. But somehow the calculation felt different.
JONATHAN GRUBER: My conjecture about a lot of why this worked is that you saw people saying, you know, I really hate paying this penalty and getting nothing when, in fact, there is an option where, yes, I have to pay some more but then I get the health insurance which I want.
KESTENBAUM: Paying a penalty just so you can not have health insurance? That felt lousy.
GRUBER: Basically people really hate, hate, hate paying something for nothing. They just don't like doing that.
KESTENBAUM: Gabriel Field, the actor pretending to have a broken arm, he eventually got health insurance for exactly this reason: He didn't want to have to pay to get nothing. As it turns out that year, he did have to go to a doctor. He had a broken toe and a bad case of walking pneumonia.
The Affordable Care Act had a lot more hiccups and a lot more opposition than the Health Connector did. But Jonathan Gruber says the sign up rates of young people for the Affordable Care Act so far look pretty similar to what Massachusetts saw in its first year.
David Kestenbaum, NPR News.
(SOUNDBITE OF MUSIC)
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