In a properly functioning market for health insurance, young people would normally pay lower premiums than older people, based on very different probabilities of needing medical care. But under the Affordable Care Act, the young are being asked to subsidize the old, with premiums lowered for the latter and hiked for the former. Hence the need for arm-twisting in the form of an individual mandate.
Whatever teeth that mandate will really possess depends greatly on the mix of incentives. Since the Act requires that no one be denied insurance based on preexisting conditions, there already will be no incentive to buy insurance in advance of any need to use it; once you need medical care, you simply buy in as though you were a customer right from the start.
That strategy wouldn’t be very popular if the financial penalty for not buying insurance approached the cost of that insurance. But the penalties are far lower, starting at $95 or 1% of annual income in 2014, whichever is greater, and rising to $695 and 2.5% by 2016. By contrast, annual insurance costs would be about $5,000, at least. And at an assumed $50,000 a year income, pretty good for most people under 35, that 2.5% still comes to just $1,250.
Then there’s the incentive, or lack thereof, to pay the penalty. Refusing to do so won’t be a crime. The collector will be the Internal Revenue Service, which won’t even have the power to dun you for the funds via the usual liens and levies. So far, it has declared only that it will have the right to keep sums it would be returning from normal tax refunds.