This originally appeared in the Huffington Post on October 23, 2013.

By Tom Allison

You’ve heard the argument a lot lately: buying health insurance when you’re young and healthy isn’t worth it. It’s cheaper to just pay the fine. The National Center for Public Policy Research’s David Hogberg even published a report that claims that 3.7 million young people would be better off opting out of buying health insurance on the individual market. The study received a significant amount of media attention, and was cited as evidence that millennials should opt out of Obamacare. Unfortunately, the paper is full of holes and shouldn’t be taken seriously.

A Faulty Case Study

To begin with, Hogberg offers a case study that doesn’t add up. He uses a 22-year-old woman living in Washington, D.C., as an example of a young person. The cheapest Bronze plan will cost $1,541 annually. Deduct a subsidy of $1,329, and the woman will have to pay $212 for insurance for the year. That’s $117 more than the minimum $95 penalty she would pay for not having coverage, argues Hogberg, so she should avoid purchasing a plan altogether. (If you’re thinking, “Wow, $212 for health insurance is pretty cheap!” don’t worry, we’ll get there.)

However, expected premiums turn out to be even lower than Hogberg’s estimate. As of October 2, the Kaiser Family Foundation subsidy calculator (which Hogberg cites as his source) estimates a Bronze plan for a 22-year-old non-smoker with an $18,100 annual income living in Washington, D.C., to be $1,488 with $1,379 in subsidies. That’s a $109 annual cost, not $212 as claimed.

Hogberg also misses another key detail: The fee for not having insurance in 2014 is $95 or 1 percent of income, whichever is larger. In this case, the woman’s $18,100 income would result in a fine of $181 — almost twice the amount Hogberg claims. It would actually cost the woman in Hogberg’s example $72 to not have health insurance. Not to mention that she can buy a full year’s coverage for just $109. That brings us to our next point.

Undervaluing Premium Subsidies

The study also generally undervalues the tax credits offered to low- and middle-income people who buy insurance on the marketplaces. The value of a Silver-level plan (a mid-priced plan) for an individual might approach $2,500 annually. However, premium tax credits can cut that price substantially. While Hodgberg uses the subsidized cost to compare to the cost of the fine, he doesn’t include the cost of forgoing the benefit — i.e., if you don’t buy insurance, you leave those tax credits on the table.

In his example, the 22-year-old woman stands to receive $1,329 toward her insurance premiums. She can only get them by purchasing insurance through a marketplace. Hogberg wants her to ignore that benefit entirely.

Valuing Health Insurance at $0

The biggest problem with Hogberg’s analysis is that, in order for it to make sense, health insurance must have no value to young consumers. This is empirically wrong and defies common sense.

Hogberg’s formula is fairly simple. He uses the Kaiser subsidy calculator and U.S. Census Bureau data to calculate the number of young people whose net costs for buying health insurance, including premium tax credits, would exceed the estimated fine for not purchasing health insurance. Millions of them, he says, are better off simply not buying coverage.

For this to work, you have to value health insurance at $0. Forget the value of preventive care, office visits, prescription drugs, and of course coverage of expensive medical catastrophes. For instance, the average cost of a three-day hospital stay is $30,000. Costs associated with fixing a broken leg can cost up to $7,500. And young people do incur medical costs: A recent study found that nearly half of uninsured young adults struggle with medical bills or medical debt.

Put it this way: Imagine an umbrella costs $10. If you buy the umbrella, your clothes and personal items will be safe and dry during a storm. If it doesn’t rain, you’re out $10. If you choose not to buy it, though, and it rains, you’ll have to dry-clean your clothes at $8 (comparable to the fine for not having health insurance). It’s possible, though, that your laptop and smartphone get soaked too. Your shoes are ruined. You catch a cold and miss work. You’re out a lot more than $10. And let’s face it, at some point, it’s going to rain. Wouldn’t you buy an umbrella?

It’s no wonder that many consumers pay thousands of dollars a year to avoid financial catastrophe. It’s worth a lot. Young people repeatedly say they would too, if only they could afford it. Now, with subsidies, they can. It’s a tremendous opportunity for our generation, not the burden that Hogberg claims.

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