The Patient Protection and Affordable Care Act, also known as Obamacare, has been controversial ever since it was enacted. But what's become increasingly clear to those on both sides of the debate is that the success of the program relies on having enough young people enroll for Obamacare. Yet many Americans don't really understand why having young people in Obamacare makes such a vital difference.
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, explains why the economics of the health-insurance marketplaces rely so much on having a representative sample of the overall population. Health-insurance companies UnitedHealth Group (NYSE:UNH), WellPoint (NYSE:ANTM), Cigna (NYSE:CI), and Aetna (NYSE:AET) have all made projections about how many people will participate in setting rates, and if those assumptions prove incorrect, then insurers might have to raise rates dramatically in future years. Dan notes that given the risk-sharing attributes of insurance generally, having only higher-risk older participants would increase the overall costs of Obamacare dramatically, threatening its long-term financial viability. Dan concludes that the more young people participate in the plan -- even if they pay lower premiums -- the more effective Obamacare will be as a true insurance program rather than simply a cost-sharing redistributive measure.
Fool contributor Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends UnitedHealth Group and WellPoint and owns shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.