The Washington Examiner’s Phillip Klein wrote an article this morning outlining the financial incentives for young people to forego insurance. This is a hotly debated part of the law because if young people don’t sign up for health care, the law will almost certainly fail. The Obama Administration has focused its outreach efforts on young people for precisely that reason. In Klein’s article, he links to a recently released study by the National Center for Public Policy Research, which calculated how much better off 18-34 year olds would be if they didn’t sign up for the exchanges and paid the penalty instead. Here are their findings:

 About 3.7 million of those ages 18-34 will be at least $500 better off if they forgo insurance and pay the penalty. More than 3 million will be $1,000 better off if they go the same route. This raises the likelihood that an insufficient number of young and healthy people will participate in the exchanges, thereby leading to a death spiral.

This isn’t surprising. Obamacare is set up so that the young and healthy pay more to offset the high costs of the old and sick. After all, those young and healthy people are going to be old and sick some day. They pay extra now, but save on costs in the future. This gets to a problem with studies like the one above: it only examines the financial incentives for young people in the short-term, not overall.

In the next ten years, the average young person will likely face minor medical costs. Insurance will be unnecessary. Young people may look at the money they are paying for a bronze plan each month and decide to drop their health insurance. As the Center above calculated, this will save them money each year (barring an unlucky health catastrophe – something the study ignores as well).

Let’s say an individual doesn’t get sick throughout his 20s and when he turns 35, he figures the risks are high enough now that he should purchase insurance. Over the next 30 years, he will likely come down with some illness. It may even be so serious that insurers would not cover him in the pre-Obamacare age. Under those circumstance, he’s very thankful that insurers can’t deny him coverage for having a pre-existing condition. Suddenly, he finds that Obamacare isn’t so bad after all. He paid a modest fee in his young years for not purchasing insurance and now that he’s older, he can buy reasonably priced coverage to cover his health bills. And those bills are paid for by the new young “suckers” who aren’t following in his footsteps and foregoing insurance.

But what if those new young people aren’t suckers? What if everyone looks at the world as he does and forgoes insurance? Well, Obamacare will descend into a death spiral and collapse under its own weight. How does that young person’s lifetime costs look now? Well, he saves a bit more money by not having to pay the fee for ignoring the now-defunct individual mandate. He grows older and suddenly finds himself with a pre-existing condition and insurers refuse to cover him. He racks up huge health care costs and can do nothing about them. Suddenly, he realizes how much better off he would be under Obamacare and regrets the choice that he and all his friends made to forego coverage. If only they had paid the $1,000 extra so that the law didn’t collapse, he would be covered right now.

There’s an even deeper problem here though. All young people understand the financial incentives they have to forego insurance. If they believe that everyone else is going to listen to those incentives and not purchase coverage, then they don’t have a reason to purchase it either. After all, if I’m the only one buying health insurance, the law is going to fail anyways and I’m just wasting my money. This is a classic collective action problem. All young people are better off in the long run if they all agree to purchase insurance. But they all have individual financial incentives in the short-run to forego it. The individual mandate is supposed to correct this, but the penalty ramps up over time so the incentives still exist next year to not purchase insurance.

This is why Klein is wrong in his article. On an individual level, each person has a financial incentive in the short-run and long-run to not purchase insurance. In the short-run, the person saves money. In the long-run, the collective action problem will cause the law to collapse anyways. But, in aggregate, young people should purchase insurance. It may not be financially beneficial in the short-run, but in the long-run it almost certainly is. Klein misses this distinction in his piece:

It’s worth keeping in mind that purchasing health insurance, in aggregate, is a bad deal for younger Americans. This isn’t even very controversial. The design of Obamacare rests on the very assumption that windfall profits from selling younger and healthier Americans more insurance than they need will be enough to subsidize older and sicker Americans.

In aggregate over the long-term, young Americans will face higher costs at the beginning, but significantly lower ones later in their life – and for those who develop a pre-existing condition, they will save a huge amount of money. This part of the law is tough to explain to young people. No one my age is thinking about how Obamacare will save them money 40 years from now. But that’s exactly how they should be thinking about it. Klein’s article only looks at the short-term financial incentives and this obscures the long-term benefits that young people gain as well. In aggregate, it is a good deal for them. It just requires a longer time horizon to see it.