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There Won't Be An Obamacare Death Spiral

February 12, 2014

By Avik Roy

For quite some time now, a cohort of conservative pundits and politicians has confidently predicted that Obamacare will "collapse under its own weight." But the latest sign-up numbers from the Obama administration tell a different story. While fewer people than projected are signing up for Obamacare-based insurance, the numbers aren’t so far off as to indicate an all-out catastrophe, what health wonks call an "adverse selection death spiral." The reality is more prosaic. Obamacare will be costlier, and less successful, than its cheerleaders have promised. But the law, and its trillions in taxpayer-funded subsidies, won’t disintegrate on their own.

On Wednesday, the Office of the Assistant Secretary for Planning and Evaluation of the U.S. Department of Health and Human Services—known in Washington-speak as ASPE HHS—released updated figures for those who have signed up for health insurance on the Obamacare exchanges. (As a reminder, signing up is not the same thing as actual enrollment in a health insurance plan; somewhere between 30 to 50 percent of those who have "selected a marketplace plan" on the exchanges will not end up paying the first month’s premium, and will thereby never formally enroll in health insurance.)

Sign-ups continue to skew older

As we’ve discussed before, one of the big problems with the exchanges is that the people signing up for coverage appear to be older and sicker than the U.S. population. That trend continued with the latest update, though the age skew slightly improved compared to the end of December. (The percentage of signer-uppers under the age of 35 improved from 29.9 to 30.8.)

However, there was one good piece of news in terms of age skew. One concern that I’d had over the past few months was that younger, healthier individuals would sign up for cheaper, high-deductible Bronze plans, whereas older, sicker individuals would sign up for the low-deductible Silver plans.

Thus far, that doesn’t appear to be happening, except among children. Among signer-uppers under the age of 18, 21 percent selected a Bronze plan, and 45 percent selected Silver. Among everyone else, however, the numbers were fairly consistent. Between 14 and 17 percent of adults chose Bronze plans, and between 63 and 68 percent chose Silver plans.

Taxpayer-funded subsidies are cushioning adverse selection

This lack of adverse selection among the various metal tiers of Obamacare-approved health plans is almost certainly due to the law’s premium support insurance subsidies. In the federally sponsored exchanges, 72 percent of those eligible for subsidies picked the financially generous Silver plan. Among those who didn’t qualify for subsidies, only 25 percent picked a Silver plan.

Overall, 82 percent of those signing up on the Obamacare exchanges were eligible for some kind of subsidy. And this is how Obamacare is likely to work going forward. It’ll be a terrible deal for those who don’t qualify for subsidies, or who only qualify for a small subsidy. It’ll be a great deal for those whose incomes are closer to the federal poverty line.

This isn’t a surprising outcome. In states like New York and New Jersey, this two-tiered system existed prior to Obamacare, in which those eligible for subsidies could buy affordable coverage, while those ineligible for subsidies were priced out of the market.

States that refused to implement Obamacare are outperforming those that did

One of the silliest talking points in defense of Obamacare’s underperformance to date is that it has been Republicans’ fault. "If only Republicans would implement the law of the land," goes the line, "Obamacare’s enrollment figures would be much better than they are." It turns out that the numbers tell exactly the opposite story. The states that didn’t set up their own exchanges are, on average, signing up many more people than their supposedly pro-Obamacare counterparts. (NOTE: See the update below for a point relevant to this analysis.)

Phil Klein of the Washington Examiner compared the latest sign-up figures to the enrollment targets that the Obama administration set in September 2013 for the same time period. I’ve replicated his analysis, and compared the progress of states that set up their own exchanges—"State-Based Marketplaces" in HHS lingo—to those that deferred to the federal government ("Federally-Facilitated Marketplaces").

Among states that refused to set up their own exchanges—the allegedly uncooperative states—1,939,588 people have signed up for coverage, amounting to 79.4 percent of the September 2013 enrollment target. Among the states with their own exchanges—the most pro-Obamacare states—only 1,359,904 people have signed up, amounting to 69.8 percent of the September target. That’s a meaningful 10 percentage-point difference in favor of the states that refused to set up their own exchanges.

Remember, again, that "signing up for coverage" is not the same thing is enrollment, and therefore that these figures overstate the actual enrollment performance. But if you generously assume that sign-ups equal enrollments, eleven states are exceeding their September targets: Connecticut (238 percent), Rhode Island (212), New York (156), Maine (144), New Hampshire (143), North Carolina (135), Idaho (133), Colorado (120), Wisconsin (115), Michigan (112), and Florida (100). At least thirteen states are below 50 percent of their enrollment target: Massachusetts (5), D.C. (18), New Mexico (23), Oregon (23), Maryland (31), Nevada (32), Kentucky (36), Alaska (41), Washington (42), South Dakota (43), Iowa (46), Oklahoma (47), and Mississippi (48).

How many of the sign-ups were previously insured?

One issue that has emerged is whether or not all of these sign-ups are people who were previously uninsured. After all, Obamacare’s upending of the U.S. health-care system is designed to provide health coverage to the uninsured. Thus far, surveys indicate that more than two-thirds of those signing up were previously covered. A McKinsey survey found that 89 percent of those signing up on the exchanges had been previously insured. If those trends continue, Obamacare will fall well short of its aspiration to reduce the uninsured population by 30 million people. But Obamacare can fail to cover the uninsured, and also fail to collapse.

Bottom line: Obamacare is underperforming; it’s not collapsing

One of the unseemly aspects of the last four-plus months is watching some on the right root for Obamacare to fail. Whatever your political affiliations, it’s not a good thing if Obamacare wrecks the health care system. Real people—real lives—will be harmed, and are being harmed, as Obamacare makes health insurance even less affordable for many in the middle class.

In some quarters, there has been a kind of intellectual laziness, a belief that there’s no need for critics to come up with better reforms, because Obamacare will "collapse under its own weight," relieving them of that responsibility.

Obamacare isn’t good for the country. But it’s not going to collapse. And that makes the development of a credible, market-oriented health-reform agenda more urgent than ever.

Original Source: http://www.forbes.com/sites/theapothecary/2014/02/12/sorry-conservatives-based-on-the-latest-sign-up-figures-there-wont-be-an-obamacare-death-spiral/

 

 
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