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Perspectives On Obamacare's First Year Enrollment

May 02, 2014

By Yevgeniy Feyman

The day that many health policy wonks have been waiting for has come: Obamacare's first open–enrollment period has officially ended on April 15, 2014. Wasting little time, the Department of Health and Human Services (HHS) has released the last of its first–year enrollment reports. The update from HHS contains some good news, and some not–so–good news. Overall, it appears highly unlikely that the healthcare law will collapse.

Top Line Numbers

Out of 13.5 million people who applied for coverage, some 8.7 million (64 percent) were found eligible to receive coverage through the publicly–run exchanges. About 8 million out of those 8.7 million (91 percent) "selected" a plan (the numbers include people who have and haven't made their first month's premium payment). An additional 6.7 million were found eligible, through the exchanges, to receive Medicaid coverage.

From a bird's eye view, these numbers portend good news. The Congressional Budget Office (CBO) had originally projected 7 million exchange enrollees, but recently reduced their estimate to about 6 million – using that as a goalpost shows something of a success story. Indeed, if average daily enrollment on the exchanges (which is what CBO estimates) holds at around 8 million, then actual enrollment will be 14 percent higher than CBO projections (this is unlikely to be the case; more on that later).

On the flipside, the group seen as the main target, the "young invincibles" (18–34 year olds), are still a relatively small share of total enrollment, compared to their share of the uninsured population. At 28 percent of total enrollment, 18–34 year olds are woefully underrepresented on the public exchanges – the young invincibles represent around 41.5 percent of the uninsured population nationally.

As the months go by, another crucial data point to track will be the share of enrollees that have actually paid a premium. There will be some attrition because inevitably, some enrollees simply won't pay up. A recent House Energy and Commerce (E&C)report pegged the non–payment rate on the federal exchanges at 33 percent (through April 15th) based on surveys of insurers. It's likely that this rate will drop to somewhere around 15 percent (a widely circulated estimate from insurance analysts, brokers, and billing firms) as people who signed up for coverage starting in June or later (potentially, a big chunk of people from mid–March through April 19) receive and pay invoices. The worst–case scenario is 5.36 million actually enrolled, with a more likely number around 6.8 million. Of course, these numbers will shift a little bit through the rest of the year as some folks cancel plans and others enroll through "special enrollment periods" for “qualifying life events” like divorce or job loss.

Digging Deeper

Broad, national numbers are useful for judging Obamacare's success politically but health care is ultimately a local issue. Markets are local (for better or worse) and risk pools are managed at the state level.

"Success" varies enormously by state. At the high end, California enrolled 1.9 million into marketplace plans (with 1.5 million eligible for subsidies). Kentucky on the other hand enrolled 201 thousand, with fewer than half eligible for subsidies. But total enrollment is generally not a great measure of "success" – after all, states vary wildly in their rates of uninsured.

A better metric (though still imperfect) of success is, in fact, the share of young invincibles in a state’s total enrollment. More importantly, though, is how this share compares to the share of total uninsured that these young invincibles make up. The reason is pretty simple: we expect the younger crowd to be healthier than older enrollees, so age becomes a proxy of sorts for health status. The more healthy people you have, the more stable and balanced your risk pool is. (Of course, more important is the actual health status of enrollees, but this information isn't available.) This, too, as one might expect, varies quite a bit. Alaska, surprisingly, leads the pack here – with an enrolled–to–uninsured ratio (share of 18–34 year olds enrolled divided by share of 18–34 year olds uninsured) of 0.81. At the low end is West Virginia with a ratio of only 0.47. Notably, even deep blue states like California and New York disproportionately enrolled the older crowd.

Ultimately, when it comes to the young (and more importantly, healthy) enrollees, what matters most for the stability of premiums is their enrollment relative to insurer expectations. Wellpoint's recent announcement, noting that enrollment more or less met expectations, underscores how important this is.

The main point here is this: selling insurance to people who think they don't need it (or those who genuinely don't) is very difficult. Subsidies help get around price sensitivity, and a more stringent penalty for being uninsured makes it more costly not to purchase coverage. But those with the biggest subsidies will likely have enrolled already (in a rare sight for health care, people seem to be behaving rationally by gravitating towards silver plans [65 percent of total enrollment] on which subsidies are based) and it’s not clear if the penalty is strong enough even in years two and three. But as with investment funds, past results do not guarantee future success. Going forward, relatively low premiums will still be critical for getting more enrollees (those without subsidies, or with relatively low subsidies, do face significantly higher premiums than in previous years).

Success or Failure?

Both crowds – those claiming Obamacare's unambiguous success, and those crowing about an unmitigated failure – are wrong. For starters, the first year is not necessarily predictive of second and third year results. The extent to which premiums increase in 2015, 2016, and more importantly in 2017 (the first year without transitional reinsurance and risk corridors) will be critical to gauging the stability of risk pools.

Moreover, even the "worst–case" scenario of 5.36 million "real" enrollees, is a strong, sizable figure. And it doesn't appear that any of the exchanges are in real danger of a "death spiral." Some adverse selection is certainly likely, but it isn’t as big of an issue for the next two years (thanks to risk corridors and transitional reinsurance). Also, plans will have a better understanding of how to price their offerings once they have more claims experience with the exchange population.

Nevertheless, another (much more important metric) is a bit murky.

It isn't clear the extent to which the exchanges – the key element in Obamacare – reduced the uninsured rate. When it comes down to it, the purpose of the law is to reduce the uninsured, rather than reshuffle the existing insurance market. And it appears that the uninsured rate is falling. Recent polls from Gallup and a survey from RAND Corporation do indicate a significant reduction in the uninsured rate. But here's the kicker – the results in the RAND survey were driven largely by an increase in employer–sponsored coverage (ESI). It isn’t clear why this happened. For one, it could be a statistical artifact. With a relatively small sample size, the margins of error in the survey were fairly wide. On the other hand, with a recovering labor market, it would make sense that ESI uptake increases as more people start working again, ostensibly at jobs that offer insurance coverage. Combined with Obamacare's employer mandate (which begins in 2015, but reporting is based on 2014 employment), this might make sense. But health economists on both sides of the aisle generally dislike the mandate and recognize that it is, more than anything, a budget gimmick. If the RAND estimates are accurate, however, then the employer mandate may have done a better job at reducing the uninsured rate than the exchanges – far from ideal.

The uncertainty surrounding key metrics relevant to Obamacare’s landscape (how attractive will exchange plans be going forward? will premiums stabilize? will the younger, healthy crowd enroll at higher rates?) should make staunch defenders more open to reforms. At the same time, harsh critics who would see the law repealed must acknowledge that the worst–case scenarios predicted in 2013 are unlikely to transpire. More than anything, the uncertainty should spur reformers.

Because future enrollees will likely receive fewer subsidies (the sickest, oldest, and poorest, likely enrolled this year), keeping premiums manageable will be important. Bringing down minimum actuarial values (as Senator Mark Begich proposed with "copper plans") can help. Paring back some of the essential health benefit categories can also be useful, as it would allow more variation in benefits, giving consumers more choices, and more room to make tradeoffs between premiums, deductibles, network size, and benefits. Reforms like these will be particularly important if, as the CBO has noted in recent estimates, the tightly–managed plans now available become less sustainable.

So what's the verdict? When it comes down to it, year one of Obamacare is far from a failure. With around 7 million paying enrollees likely, we're well past the death spiral scenarios envisioned during the disastrous rollout. Moreover, it's very likely that the uninsured rate did fall (though perhaps not entirely for the right reasons). But the real challenges are still ahead; and real reforms can help meet them.

Original Source:



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