Older Americans not yet eligible for Medicare are more likely to pay the 2014 penalty rather than purchase health coverage, according to new research from HealthPocket and Deft Research, a market research firm which analyzes the health insurance industry. Researchers found younger consumers are more likely than their older counterparts to purchase insurance in the new health insurance exchanges starting in 2014 because they will be lower income and therefore receive larger subsidies and benefit from lower age-based premiums than older buyers. The analysis findings contrast with what some have previously speculated.

With major provisions of the Affordable Care Act (ACA) set to go into effect in January 2014, some of the discussion has been focused on whether young people will purchase health coverage or opt to instead pay a penalty. While the ACA will limit how much an insurer can raise rates due to age (i.e., an older person can only be charged three times more than a younger person), the resulting premium for older consumers presents a major obstacle to affordability.

An ACA subsidy analysis found that a 60-year-old with an annual income of $45,000 who chooses a silver plan with a $8,191price tag will receive a premium subsidy of $3,916. That person will end up paying $4,275 for their annual coverage (about$356 per month). In contrast, a 28-year-old earning $20,000 per year will receive $2,259 in a premium subsidy—resulting in a cost of $1,021 or about $85 per month for a $3,281 silver plan. As his or her income grows, this young consumer would continue to receive a subsidy until his or her insurance premium equaled 9.5 percent of income—or until income totaled $34,500.

Lower-income, frequently younger consumers can earn more and still receive subsidies that are adjusted with earnings. However, if the 60-year-old described above making $45,000 earns an additional $1,000 ($46,000, reaching 400 percent of poverty), the subsidy drops to zero. He or she will then pay the full silver plan premium of $8,191—nearly $4,000 more than would be the case if he or she earned just $45,000 in income. By contrast, a 28-year-old would pay $3,281 per year regardless of whether he or she earned $45,000 or $46,000 in that year.

"The existing individual health insurance market works very poorly for people who are in their 50s and early 60s but not yet eligible for Medicare because so many of them have pre-existing conditions that have historically caused them to be turned down for coverage," said Steve Zaleznick, executive director for Consumer Strategy and Development at HealthPocket. "While Obamacare guarantees coverage to all applicants—regardless of their health status—the cost of coverage remains a daunting hurdle to those whose rates will be three times the lowest rate charged to young Americans."

In an extreme example of this so-called "subsidy cliff," a 60-year-old couple with $62,000 of income will receive a subsidy of$10,492 for health insurance silver plan coverage that costs $16,382. However, that subsidy drops to zero if the couple earns an extra $1,000; so the 60-year-old couple earning an income of $63,000 would pay the full premium amount of $16,382 out-of-pocket. A person in that situation is likely to consider a lower cost bronze plan, but would then be faced with paying greater out-of-pocket costs when using healthcare.

"Our research shows it's quite possible that despite the warnings, the ACA will coax younger people into health insurance coverage," said Rich Hamer, principal at Deft Research. "Older people may have a clearer understanding that they are not invincible, but they also have budget considerations that we will need to watch as the law comes into full effect in 2014."

The analysis cautions that those at the highest end of the age rating band, and close to the 400 percent of poverty level, will have a particularly difficult time sorting through subsidy issues. As shown with the examples above, incorrect estimates of annual income can mean significant differences with respect to the amount of subsidy provided. The resulting requirement to pay back subsidies has to be understood by consumers—especially those at the higher age rate bands as part of their planning for the ACA.

The study was conducted by Deft Research and analyzed in cooperation with HealthPocket. Results are based on 5,084 responses collected nationally in April 2013. Respondents were uninsured and subsidy eligible consumers between the ages of 18-64 years old. Read the report.