Healthcare.Gov’s Numbers at the Deadline

After the disastrous launch of Obamacare the enrollment of 1.1 million people in the 36 state exchanges run by the feds is a major accomplishment. It is likely that the enrollment in the 14 state-run exchanges will take total Obamacare’s private insurance enrollment to near 2 million for the year.

Does this mean that Obamacare is finally on track and moving toward success?

At least the front-end of HealthCare.gov is now clearly working.

I will suggest there are still some very important questions for Obamacare that need to be answered.

First, how many of these new enrollments are people whose policies have been cancelled under Obamacare?
As I have said on this blog before, I expect at least 80% of those in the existing individual health insurance market to lose their coverage by the end of 2014. Half of the market bought their coverage after March 2010 and therefore cannot continue while most of the other half of the market will not qualify under the Obama administration’s stringent grandfather rules.

What we don’t know is just how many of these people had to buy new coverage on January 1 given the widespread offers by carriers to “early renew” their coverage into late 2014. Then the President asked insurers and states to allow people to keep their coverage another year. It appears about two-thirds of the states went along with that request. Then many of the cancellations won’t occur until they renew throughout calendar year 2014.

We do know that California did not allow insurers to continue coverage for another year leading to 800,000 cancellations on January 1 and 200,000 cancellations by March. The state exchange has said that 300,000 of these are subsidy eligible and they can only get a subsidized policy on the exchange.

California will likely announce they have signed-up about 600,000 people this year. But given the cancellations that are occurring by January 1, is this a big accomplishment?

Washington State cancelled 260,000 policies and also did not allow the cancelled policies to continue past January 1. Half of these polices are subsidy eligible and can only get a subsidized policy in the state insurance exchange. Washington State might report 100,000 private plan enrollments by year-end. But if they cancelled 130,000 people who can only get a subsidized policy in their exchange, is this a big accomplishment?

The good news is that Obamacare will likely enroll almost 2 million people in 2013.

Even if we ignore that fact that many of these people were previously insured and had to replace cancelled policies (there were more than 400,000 subsidy eligible cancellations in California and Washington alone), 2 million people are only 10% of the 20 million uninsured in the U.S. who are eligible to buy coverage in the health insurance exchanges.

If we net out the cancellations, has Obamacare signed up 5% of the uninsured, or 6%, or 7%? Whichever, it’s not even 10% net of the cancellations.

Is this relatively small percentage of the uninsured who have signed-up mostly the healthy or the sick?
We don’t know for sure. But logic would say that the first people through the door had to include the sickest and neediest people. The smaller the enrollment number, the more likely it is dominated by the sickest. Consider this fact about health and population: 2% of the population accounts for 50% of all health care costs. The long-time underwriting rule is that it takes 70% of an eligible group in order to get a sustainable pool––meaning we need 70% of the 20 million uninsured net of cancellations, or 14 million, for a truly sustainable risk pool.

Will millions more sign-up by March 31?
The Obama administration will now argue that Obamacare has lots of momentum and three months to sign-up a sustainable pool with lots more healthy than sick.

They are right.

Obamacare has three months to attract the people, most importantly healthy people, who have been sitting on the sidelines so far.

Will these people sign-up in adequate numbers to make Obamacare sustainable?

The Democrats have been fond of saying that once HealthCare.gov is working people will be able to go to the site and see for themselves just how attractive Obamacare is.

The front-end of the site is now finally working quite well––in contrast to the very serious back-end issues that still remain.

I suggest you do what the Democrats have been suggesting and visit HealthCare.gov. When you do, you will find that the entry page has a big icon on the left side, “See Plans Before I Apply.” Click on that and enter a sample age, state, county, and sample income. You don’t have to create an account or enter any personal information. You can take a look at any of the 36 federally run states. The site will show you all of the plans available, including the deductibles and co-pays with premiums that are net of subsidy. Unfortunately, most plans won’t let you check out the provider network on the federal site.

Take a look. Put yourself in the shoes of lower middle-class and middle-class people who will likely have to pay 10% of their after tax income, net of the subsidy, for plans with an average Silver plan deductible of $2,567 and an average Bronze deductible of $4,343.

Will millions more buy Obamacare before March 31?

Do your own analysis: HealthCare.gov.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

32 replies »

  1. Bob –

    I don’t know what it would take in the way of higher deductibles or higher taxes to pay for capping out-of-pocket costs for Part B services under standard Medicare. I’ll make the following points though: (1) The 9 million people eligible for both Medicare and Medicaid (dual-eligible) cost the system $300 billion per year out of roughly $1 trillion of spending, (2) Medicare Part A financing is already viewed as unsustainable with the Trust Fund currently slated to run dry by 2024, (3) Medicare beneficiaries who want an out-of-pocket cap on can already get it with a Medicare Advantage plan but they would have to accept a limited provider network, and (4) There are lots of unmet needs at all levels of government and a general reluctance to raise taxes especially in a less than robust economy.

    If we were to raise federal taxes, I would prefer to see a federalization of Medicaid coupled with reform of state and local pension and retiree health insurance programs. Let the states use the money freed up from no longer having to pay for Medicaid to fully fund their pension plans and to reduce benefits for work that has not yet been performed. If they have money left over, reduce state and local taxes. At the same time, have one national set of rules for Medicaid benefits and eligibility standards coupled with a strong role for managed care insurers which can use case management and other strategies to reduce the cost of care, especially for the sickest beneficiaries.

  2. Thanks Barry.

    I was aware of the $1200 deductible per hospitalization in part A. Since this is a lower deductible than is faced by over 80% per cent of workers under 65, I am not too troubled by it.

    As for the unlimited coinsurance in part B, let me toss some numbers out there.

    Say that 5% of seniors have a major illness each year. Let’s add that a higher percent of the fully disabled (who also get Medicare) have extensive medical care each year.

    Just for guesstimates, let’s put 10 million persons in that group

    Say that their part B billings average $30,000 each.
    Now they pay 20% all the way up to the
    $30,000, or $6,000 out of pocket.

    If we capped out of pocket at $5,000 in a year, the additional exposure to the government would be 10 million times $1,000 or $10 billion.

    That would raise Medicare costs by less than 2%.

    This would leave some outlier cases like transplants or late stage cancer, where the govt exposure is larger, but overall this seems doable.

    Right now they must pay

  3. That 20% under Part B can run to serious money very quickly.

    So, we contemplate a situation where all providers can be forced to work for Medicare wages?

  4. Bob –

    You forget that in any risk pool, the sickest 5% of members account for about 50% of medical claims in any given year. Part A also carries a deductible of about $1,200 for each hospitalization on top of the uncapped Part B exposure and, of course, limited long term care coverage. At the same time, the healthiest 50% of seniors only account for 4% of medical claims which means 25 million people have total claims averaging less than $1,000 each in a typical year.

    Congress, in its infinite wisdom likes to sprinkle benefits over as many people as possible so those people will see the program as a more or less reasonable to good value for the premium paid and continue to support it. As a result, Part B has a comparatively puny deductible of $150 or so. If the deductible were raised to $500 or $1,000 with perhaps a lower number for those that can pass a strict means test, we could probably afford a reasonable out-of-pocket maximum of $10,000 or even less for Part A and Part B claims combined.

    This desire to sprinkle benefits over as many people as possible also accounts for why there is a donut hole in the Part D drug program. It was put there to meet budget constraints. The current drug deductible is $310, I think, and there is a 25% copay requirement up to a certain level where coverage ceases until you burn through the donut hole zone. Then you go into the catastrophic coverage zone where your copay is 5%. In any given year, only 12%-15% of seniors reach the donut hole zone and two-thirds of those don’t come out the other side into the catastrophic zone.

    You have to understand that Congress doesn’t act in ways that make economic or actuarial sense. They act to maximize their probability of getting re-elected. Re-election for a politician is the equivalent of profit for a businessman. It drives how they think and how they do business. It’s not the way either of us would design the program but our way would probably have never made it through the legislative process in 1965 or now.

  5. I am not an expert here, but it seems to be that the only way in which Medicare is “inadequate” is that there is no cap on the 20% exposure in Plan B. There is also no real long-term care coverage in Medicare.

    I have read that the first problem could be fixed with a simple piece of legislation that capped out of pocket expenses at $5,000, $10,000, or whatever. This would apparently not cost terribly much to taxpayers of working age, and it would be a great relief to seniors both emotionally and financially.

    Why is such a law not passed? Many insurance carriers make most of their profits on Medicare Advantage and supplements. Are they sitting on what seems like a simple piece of legislation?

  6. Since I’ve been on Medicare for two years now, I can tell you that a good supplemental plan plus a freestanding Part D drug plan costs my wife and me about $213 per month each in central NJ. Add in another $104.90 each for the standard Part B premium and we’re looking at $636 per month for the two of us. High income people with income above $85K for a single filer and $170K for a joint filer are subject to the IRMAA surcharge which can be as high as another $300 per month each for couples with incomes above $428K. About 2% of beneficiaries pay it now but more will in the future because the income threshold is frozen through 2019.

    Medicare Advantage plans which include drug benefits are available for low and even zero premiums which eliminate the need for a supplemental plan. Indeed, you can’t buy one with MA even if you wanted to. You just have to pay the standard Part B premium of $104.90 per month each plus the MA premium if any.

    The downsides are a limited provider network and, if you ever want to go back to standard Medicare, you can’t buy a supplemental plan unless you can pass medical underwriting. Anyone with significant medical issues is better off with standard Medicare plus a supplemental plan if they can afford it in order to ensure maximum choice of providers including when traveling outside of your home region.

  7. Oh, I forgot about the $100 or so a month for each of them for Part B.

    No prudent person would risk financial disaster by relying on the wholly inadequate coverage afforded by Medicare. He certainly couldn’t be induced to exchange his protection under a group plan for it.

  8. Indeed, and when our couple hits 65, they can probably obtain supplemental insurance (including drugs) for not much more than $500 a month.

  9. Even we could somehow implement the UK’s single payer system in the U.S., complete with age based rationing, coverage and payment policies based on QALY metrics, and lengthy wait times for non-emergent care, health policy expert, Uwe Reinhardt of Princeton, estimates that it would probably still cost twice as much per capita in the U.S. as it does in the UK because our docs are paid more, our hospitals cost far more per licensed bed to operate and our litigation system drives overtreatment, especially for diagnostics and for hospital based care where there is often no prior relationship between doctors and patients. Patient expectations are also higher in the U.S. than elsewhere.

    In addition, if we allowed the government to negotiate drug prices like they do in Europe and Canada, it would require a much more restrictive formulary of covered drugs to force manufacturers to lower prices of brand name drugs to close to European and Canadian levels. Then, they would raise prices there because they would no longer have the benefit of the unfettered U.S. market that allowed high prices in the U.S. and marginal cost pricing elsewhere to pay for drug research. By the way, generic drugs are already cheaper in the U.S. because of our larger population of patients, stiff competition among multiple manufacturers, and hefty buying power among a small number of drug wholesalers and large retail drug chains.

    Medicare spends about $12K per capita despite having 50 million people in its pool of which about 12% is paid for by beneficiary premiums. Insures probably spend close to that much on the 60-64 year old population. The saving grace for the 62 year old couple in central Texas is that they only have three more years to go before they qualify for Medicare which all taxpayers, including young people, help pay for. The underlying appeal of Medicare for All isn’t efficiency or cost-effectiveness; it’s taxpayer financing. It would probably also have to raise its reimbursement rates especially for hospital based care if there were no longer a large private sector to shift costs to.

    Like I said before, if you want less expensive health insurance, find ways to lower the underlying cost of healthcare. There are numerous potential approaches which I’ve written about before.

  10. You are right 41, those rates won’t “entice” many at those income levels who honestly look at the deductibles and understand they would be better to just work out a payment plan with the hospital or declare bankruptcy. Another aspect is, if you’re that sick you probably can’t work to pay premiums or deductibles.

    Welcome to America.

  11. You’re right Bobby, but until the employer paid pool starts to implode people will cling to the devil they know. As well, with the ACA doing so badly, now they won’t trust government to get it right even more.

    Maybe we could get the option of joining the German, Dutch or Canadian systems and let them manage it for us. :>)

    The single pay systems survive because it’s all one pool with one voting block, loyal to the system to a large extent and demanding it survive to serve patients.

  12. Just did a little pricing on Humana plans in Central Texas. For a couple jointly earning more than $62,040, each 62 years of age, the premium for the cheapest bronze plan is $598.74 a month. The deductible is $4,600, with an out-of pocket maximum of $6,350 for each person. To obtain a $2,500 deductible, they would have to step up to the gold plan, with a maximum out-of-pocket of $3,500 each. The premium for this plan is $1,280.94 a month. The premium for the least expensive silver plan is $927.32 a month, with a deductible of $4,600 and out-of-pocket maximum of $6,300 for each person.

    Let the revels begin.

  13. So having concealed from people the burdens to be placed on them, even affirmatively lying to them, repeatedly, your “advice” to them is to stop whining and get used to it. Yeah, that’s the way to play it. And when the exchanges begin to founder, and insurers start to withdraw, the hordes of the disaffected will see that “single payer” is the only solution, right? Either that, or you can just extract the necessary amounts from them by increased taxation. It’s not as if they could do anything about it, is there?

  14. ” I fear that we on the individual market will become the “forgotten 5%”.”

    And the politically powerless. No AARP for us to wield votes and subsidies in DC.

    “I hope that stories continue and that maybe, just maybe, at some point things will be fixed enough that I can get insurance again….sigh.”

    Hope for higher income subsidy levels, but don’t hope in vain for any part of the insurance or provider network to give up anything easily that will reduce your payment. Spreading the costs over a larger pool would help but we already have politically created pools protecting their turf and subsidies.

    Welcome to America.

  15. I think most employees have no idea how much their employer is spending for health insurance on their behalf, which, as I noted previously, the employee is paying for in the form of lower wages than would otherwise be paid. This is especially true in the case of the gold plated plans that are part of union labor contracts.

    If it were up to me, I would deal with the tax preference for employer provided health insurance by eliminating it as part of tax reform that also reduced marginal income tax rates and / or increased the standard deduction so that the overall tax changes were revenue neutral to the federal government. You could even keep rates the same at the high end so that all the benefits of rate reduction could be focused on the middle and lower middle class while raising the EITC at the low end to offset the incremental payroll tax.

    I think we are going to see huge growth in private exchanges especially for pre-Medicare eligible retirees and later for active workers as well. Employers will make a defined contribution and employees and retirees will choose a plan from either a single carrier or multiple carrier private exchange. There are significant administrative savings vs. the individual market because it’s much cheaper to sell insurance policies hundreds or thousands at a time vs. one at a time. Look for employees to become much more price sensitive and more willing to accept a narrow network insurance plan when they learn that it’s 25%-30% less expensive than a broad network plan.

    As for allowing people to only buy the benefits they think they’ll need, that’s will only ensure that those benefits are expensive for those who think they might need them. Moreover, do you really think it’s perfectly acceptable to make young women pay twice as much for health insurance because they need maternity benefits? I don’t.

    Finally, the best way to lower the cost of health insurance is to lower the cost of healthcare. Health insurance is expensive because healthcare is expensive. It’s that simple.

  16. Great points, T.

    Most of the inequalities that you cite have been present for the last 40 years.
    I say that because in my working life since 1974 I have had both kinds of coverage.

    I think that for all its flaws, the ACA does reduce that inequality for some individuals. There are cases where people have gone from death-spiral narrow individual policies to better ACA policies at a lower net cost.

    I do not know of any political figures who really lose sleep over this inequality. The millions of Americans who do have secure and cheap (to them) employer coverage certainly lose no sleep over this issue.

    So, what the heck, make my day. Do you have any pet ideas for making things more equal? thanks

  17. Wrong. Key differences:

    1. Employer insurance is hugely government subsidized, where for half on the individual market, it is not. Insurance per employer is yes, part of a compensation package. However, employers can write off the cost. Thus, the true cost of insurance for employers is far smaller than it is for individuals. In addition, employers discriminate in hiring based on age, partly due to the costs of insurance so the pool isn’t the same. And the employer pool doesn’t typically include the AGING high risk pool, so the costs are lower.

    2. More government subsidies: Insurance under employers utilizes pre-tax dollars for a huge tax savings. Everyone saves 15% because Social Security tax doesn’t apply. After that, savings depends on income. People on the individual market don’t have that luxury. Again only half are eligible for subsidies and for some the subsidy is small.

    3. For about the same money we pay on the individual market, employee sponsored health insurance has robust networks, rather than the narrow and often pathetically narrow networks on the new and improved individual plans. Thus, the individual plans are far more expensive per amount of care received.

    4. And for your logic to work, people on the individual market would have to be making more money than people with employer sponsored health plans to compensate for the insurance. In reality, they are frequently making far less. And that’s why they/we need an option to buy only the types of insurance we need.

    5. In addition, in order to attain any subsidies, employees who have employer sponsored plans don’t have to declare their income every month to avoid penalties and don’t have to face the 400% subsidy cliff if they happen to have a good year. People on employer sponsored plans have the option of making as much money as they would like and not have to pay far more for insurance. Under Obamacare, people on the individual market have repressed earning power if they want subsidies. Or to accelerate earnings, they have to earn far more money than the subsidy cliff takes away.

    So you’re completely wrong. They are not the same thing. Feel free to justify it all you want. That will be the new meme of the “progressive” hemisphere of the world. But the reality is it’s going to create a new class of poor. And in 5 years, remember that you liked it.

  18. I’m just glad I don’t have to go to DefenseCare.gov to enroll in the military defense that is my constitutional “right.”

  19. Frankly, I think this is all much ado about very little. A typical self-funded large employer health insurance plan probably spends about $5,000 per covered life including modest administrative costs. Employees all contributed the same amount toward the premium whether they are 21 or 64 and depending on whether they have single coverage or family coverage. The financing is based on pure community rating or a 1 to 1 age rating band as opposed to a 3 to 1 band for the ACA.

    Most reputable economists will tell you that the employee is actually paying the full cost of the premium, including the share nominally paid by the employer, in the form of lower wages than would otherwise be paid. This means that the young are subsidizing the old. Everyone accepts this system largely without complaint because new employees know from their first day on the job that this is the way the system works.

    The key difference with the ACA is the rules are suddenly changing in significant ways. People can no longer pick and choose only the benefits they think they are likely to need or use. Men don’t want to help pay for maternity benefits. People who don’t think they will need mental health or substance abuse benefits don’t want to pay for those. The young don’t want to pay to help subsidize older and sicker people. My advice to all these complainers is basically to get used to it.

  20. Indeed.

    I have long pointed out that the actuarial medical UTIL risk model is a 60 year-ish power curve (“hockey stick”-ish) closely correlated with age. No mystery whatsoever.

    Yet we continue to sell medical “insurance” in one year chunks. Utter miscalibration.

  21. Howard Dean now saying the individual mandate “doesn’t really matter that much.” (Howard Dean: Individual Mandate in Obamacare Wasn’t Necessary, David Sherfinski, Washington Examiner, 12-30-12) This comes on top of his admission on Fox News Sunday that the young and healthy weren’t “signing up” as expected. He obviously realizes that Obamacare is becoming a political albatross.

  22. Count me as a Minus-1 in Washington State. I can’t afford insurance anymore, and dropped my coverage as of January 1st, 2014. I’m hoping my financial situation will change and I’ll get coverage before open enrollment period ends, but for now, I’m going without insurance.

    BTW, I hate the misnomer about physicals and mammograms being preventive care. They are NOT. The care received as a result of finding an abnormality via one of these screenings is preventive care. And Obamacare only covers that AFTER you meet the high deductible.

    Now that the web site is “working,” the nightmare stories about Obamacare are fewer. I fear that we on the individual market will become the “forgotten 5%”. I hope that stories continue and that maybe, just maybe, at some point things will be fixed enough that I can get insurance again….sigh.

    Meanwhile, I’d better make sure and eat my veggies.

  23. At some point, probably more than once, you are going to get sick enough to require medical care. You hope that event does not kill you and, if so, that the treatment cost does not impoverish you. You might want to have regular check-ups for forestall such events. And you might want to have made financial provisions in advance for those near-certain eventualities.

    Even though your concerns are self-centered, you are not alone. Other people have the same apprehensions.

    Now, how do we collectively face the future? It certainly is not by ceaseless bickering, adding fears of the uncertain on top of well-founded fears, and gumming-up the business of government out of petulance.

    Let’s stop regurgitating these useless arguments. Leave eating one’s own vomit to dogs. We must be better than this.

  24. “10% of their after tax income, net of the subsidy, for plans with an average Silver plan deductible of $2,567 and an average Bronze deductible of $4,343.”

    What’s not to love, from AHIP’s perspective? Hell, they essentially wrote the law.

  25. Well count me as a -1 in Washington. Insurance that has to cover everything from soup to nuts is unaffordable for me. I’m one of the “lucky” people who can waive the penalty because my relatively decent plan was cancelled.

    We’ll see what next year brings.

  26. Bernie Madoff misrepresented his “plan” to his clients and was arrested for Fraud, convicted and is in prison.

    Obama misrepresented the “ACA plan” to his clients (US taxpayers) and not only is still “free” but continues to try to sell his plan.

    Democrats in Congress conspired with Obama on this Fraud. Some were duped, but all were negligent in performing their duties to represent “WE THE PEOPLE”.

    Anywhere but in Washington DC this would be called FRAUD and prosecuted – promising benefits that Obama KNOWS are not true and cannot possibly be done.

    “You can keep your current plan”

    “ If you like your doctor, you can keep him”

    “It will be AFFORDABLE high quality health care”

    “This health care package will pay for itself”

    “ The health care bill will not raise the deficit by one dime”

    “ We should not mandate the purchase of health care”

    “ This law will save the average family $2,500 a year”

    “ Under our plan, no federal dollars will be used to fund abortions”

    “ ObamaCare fee is not a new tax”

    “ Obamacare will cost less than your monthly cell phone bill”

    “You will have choice in your plan” (The only choice is how much you will pay, both in premiums and in deductibles/co-payments).

    The government has no “magic wand” that will reduce health care costs.

    You lose your freedom of choice.

    Is it “fair” that the young/healthy should pay for the “old/unhealthy”?

    It is “fair” that you have no choice of what benefits your plan covers?

    Is if “fair” that taxpayers should foot the bill for the plans shortfalls?

    Should the Obummer-in-chief have the ability to change the details of the law at will, which he has been doing?

    Vote out all congress persons who voted for Obama’s “plan”.

    Impeach Obama for his fraud.

    REPEAL Obamacare NOW!!.

  27. Yes Robert, 3 major questions. How many of those signed up are folks that had other policies cancelled to begin with?
    How many are basically healthy that have signed up? I doubt many of the initial applicants would have taken the time and effort on the phone or website unless they had a real need for it.
    How many of these will complete the transaction with payment, AND continue to make those payments?
    And yes, how many will sign up to avoid the penalties by March?