One of the more Obamacare fluent reporters just emailed me a set of questions regarding the 2016 outlook for Obamacare.
I thought I would share my responses with you:
According to early CMS data, 38% of exchange enrollees are under age 35. Is the risk pool beginning to stabilize?
It’s too soon to know if the pool is beginning to stabilize. First, the administration’s announcement that 38% of the pool is below age 35 is disingenuous. They are counting all of the children that show up on the rolls with their families. They did not give us the far more important age 18-to-35 number.
Second, the overall subsidy eligible exchange penetration stood at about 35% at the end of 2015. Ideally, Obamacare needs to about double its penetration of the eligible to assure a balanced pool of the sick and the healthy.
Then of course, we always see these big enrollment numbers being announced by the administration only to see the block shrink dramatically by year-end.
So, it will really be a year before all of the dust settles on the 2016 enrollment and we really know what the claim levels are relative to the premiums being charged.
If rates increase too much in 2017, will those young people jump ship?
I worry more about the really poor take-up rates for the healthy people who have not signed up in the 200% of federal poverty level and above brackets than I worry about the percentage of the young who have signed up. Way too much emphasis is put on this age 18-to-35 statistic. Yes, they are more often healthy but under Obamacare the youngest pay one-third the premium of the oldest. We really need the healthy to sign up in much bigger numbers, that have so far been holding out, more than we need the young.
A few observations from my travels and conversations in the marketplace:
About half of the enrollments are coming from people who were previously insured and half are not. When I try to gauge this, I go to carriers who had high market share before Obamacare and have maintained that through the first open enrollment. Some carriers have said only a small percentage of their enrollments had coverage before but health plans only would know who they insured before.
By sticking to the high market share carriers who have maintained a stable market share and knowing how many of their customers are repeat buyers, it’s possible to get a better sense for the overall market. Other conventional polls have suggested the repeat buyers are closer to two-thirds of the exchange enrollees.
The number of those in the key 18-34 demographic group improved only slightly during the last month of open enrollment so the average age is still high. The actuaries I talk to think this issue of average age is made to be far more important than it should be. It is better to have a young group than an old group. But remember, the youngest people pay one-third of the premium that older people pay.
The real issue is are we getting a large enough group to get the proper cross section of healthy and sick?
The bigger concern continues to be the relatively small number of previously uninsured people who have signed up compared to the size of the eligible group. The recent report released by Express Scripts reporting on very costly pharmacy claim experience from January and February enrollees is far more concerning than the average age.
In September 2012, I said that Republican governors should be expanding their Medicaid programs under Obamacare.
I argued that Republicans have long called for state block grants and the flexibility to run their own Medicaid programs in what are the state “laboratories of democracy.”
I made the point that, given the then recent Supreme Court decision enabling states to opt out of the expansion, the Obama administration would be hard pressed to deny any reasonable proposal from Republican governors.
If Republicans really believed in state responsibility and flexibility for how they run their Medicaid programs, this was the opportunity to prove it. (See here.)
Since then, a few Republican governors have taken that tack and the Obama administration has been very cooperative and flexible.
This is a good place to recognize outgoing HHS Secretary Sebelius for her leadership by being willing to work with state Republicans in order to get millions of people covered who wouldn’t be getting coverage otherwise.
Good faith Republican Medicaid proposals have led to good faith responses from Sebelius’ Department of Health and Human Services (HHS) and a few done deals and other deals still in the works.
Many Republicans have said that Medicaid is not sustainable and that the feds could well cut the new Obamacare funding in future years. Sebelius responded by giving these governors an out if funding were to be cut.
Of course Medicaid is unsustainable, that’s why the states should be given the autonomy to run their own plans and deal with these challenges in any number of different ways the country can learn from.
The Administration has snatched victory from the jaws of defeat and enrolled 7 million people (give or take a million who may not have paid their premiums) into health plans under the ACA, and more into Medicaid. The Affordable Care Act (ACA) isn’t as big a change as some of us would have liked, But in this moment of modest celebration let’s remember what some of the sensible old men said all along.
Sensible old men said reform couldn’t pass without bring in the Republicans. Sen. Baucus tried hard to do that, and it’s beyond clear that no Republican would have ever supported it–even a moderate like Snowe who was quitting. It passed anyway.
They said that we’d see massive rate shock. Instead plans tightened networks and rates were in general lower than they had been before.
They said that the web site debacle meant no-one would sign up and we’d go into an insurance death spiral. The web site launch was a cock up, but Medicaid expansion (where allowed) has more or less been OK, and the exchange web site(s) now more or less work(s)–outside Oregon & Maryland. By the way this backs my argument for having one Federal exchange, which you may remember was in the House bill before we ended up being forced to take the Senate version due to Ted Kennedy’s death.
One wise old man (Robert Laszewski) was still saying that the exchanges would be financial disaster for insurers the very week Wellpoint raised earnings expectations because they had more enrollees than expected.
Let’s also remember that because of the politics of the nation, the ACA is a ridiculous hodge-podge of a law requiring–you’ll recall:
a) an opt-in to what’s basically a social insurance program (hey, let’s opt-in to fire protection while we’re at it!)
b) arbitrary tax (and now subsidy) distinctions between those who get insurance via an employer and those who don’t, and
c) arbitrary access to insurance (well, Medicaid) for the poor depending on their income and which side of a randomly drawn line they live.
Politics is about expectations.
The Obama administration blew the doors off Obamacare’s enrollment expectations this week and scored big political points.
But in doing so, they may have set Obamacare’s expectations going forward at a level that can only undermine their credibility and that of the new health law.
What happens when the real number––the number of people who actually completed their enrollment––comes in far below the seven million?
What happens when the hard data shows that most of these seven million were people who had coverage before?
What happens when it becomes clear that the Obamacare insurance exchanges are making hardly a dent in the number of those uninsured?
Yesterday, the Los Angeles Times reported that the non-profit Rand Corporation estimated that two-thirds of the first six million people to enroll in Obamacare were previously insured––only two million were previously uninsured.
If all of the one million people who signed up in the last week were previously uninsured, that would mean that only three million previously uninsured people have purchased coverage in the government-run exchanges.
Rand also estimated that about nine million people have enrolled directly with the insurance companies, bypassing the government-run exchanges. But Rand also reported that the vast majority of those were previously insured.
If 20% do not pay, as has been the case since Obamacare launched, then the real Obamacare exchange enrollment number is about 5.7 million.
To properly price the exchange health insurance business going forward the carriers have to sharply increase the rates.
A senior executive for Wellpoint, which sells plans in 14 Obamacare exchanges, is quoted in a Reuters article telling Wall Street analysts there will be big rate increases in 2015, “Looking at the rate increases on a year-over-year basis on our exchanges, and it will vary by carrier, but all of them will probably be double digits.”
If the health plans do issue double digit rate increases for 2015, Obamacare is finished.
There are a ton of things that need to be fixed in Obamacare. But, I will suggest there is one thing that could save it.
The health insurance companies have to submit their new health insurance plans and rates between May 27 and June 27 for the 2015 Obamacare open-enrollment period beginning on November 15th. Any major modifications to the current Obamacare regulations need to be issued in the next month to give the carriers time to adjust and develop new products.
If the administration goes into the next open enrollment with the same unattractive plan offerings costing a lot more than they do today, they will not be able to reboot Obamacare.
Simply, health insurance plans that cost middle-class individuals and families 10% of their after-tax income and have average Silver Plan deductibles of more than $2,500 a month are not attractive and people won’t buy them any more enthusiastically next fall than they already have. See: Obamacare: The Uninsured Are Not Signing Up Because the Dogs Don’t Like It
Doubling the fines for not buying in 2015 will only give the Democrats more political problems––and it doesn’t look to me like they are going to enforce the fines anyway.
Health insurance plan executives are now faced with a daunting decision. How do they price the 2015 Obamacare exchange plans?
Even if the administration announces they have signed-up about 6 million people by March 31, the number of people enrolling would be well below expectations––only about 25% of those subsidy eligible will have signed up by the deadline. An enrollment that small guarantees the risk pool is sicker and more expensive than it needs to be in order to be sustainable.
But dramatically increasing the rates will only assure even fewer healthy people will sign up for 2015 and some of those who signed up for 2014 will back out over the higher rates. This is what a “death spiral” looks like.
We are hearing that Republicans are considering proposing high-risk pools as part of an alternative health insurance reform proposal to Obamacare.
A high-risk pool proposal would likely mean the Congress giving states the flexibility, and perhaps funding, to set up these risk pools. Risk pools by definition are a place where people can go when they are not able to buy health insurance in the regular market because they have a health problem.
That means Republicans would be turning the clock back to a time when insurance companies could turn people down for health insurance because of their health status.
Presumably, the Republicans are contemplating a market where insurance companies could once again choose just who they wanted to cover––the healthy but not the sick.
Anyone turned down could then go the high-risk pool to be assured of having health insurance. Presumably, Republicans would assure consumers that they would be able to access the same kind of comprehensive health insurance and at the same market rates as those able to buy from insurance companies would be able to get.
Let me be clear at this point that I don’t know of anyone in the insurance industry asking to go back to the days when a carrier could exclude people as a result of their health status and make money just covering the healthy.
Whether it’s Obamacare or a risk pool concept, policymakers are faced with the same dilemma: How do you insinuate the unhealthy and otherwise uninsurable into a health insurance system in a way that benefits are comprehensive and costs are affordable for everyone?
There are news reports indicating Republicans will be proposing such longstanding health insurance reform ideas as selling insurance across state lines and association health plans.
These ideas have been around for some time and have served Republicans as convenient talking points out on the campaign trail positioned as common sense alternatives to Obamacare.
When I discuss these ideas with people in the insurance industry––people who know how their market really works––these ideas generally command plenty of snickers.
Selling Insurance Across State Lines
Presumably, Republicans are targeting the many state benefit mandates that drive health insurance policy prices up. The idea is to allow the sale of policies from states with the fewest benefit mandates to be able to be sold in a high mandate state––thereby encouraging the state with more mandates to curtail them.
There are a number of problems with this idea:
- IF it did attract new carriers to a market, it would be a great way to blow up an existing health insurance market––for example, the high market share legacy Blue Cross plan whose business is in compliance with all of the existing state benefit mandates. A new carrier could conceivably come into the market with much lower rates––because it is offering fewer benefits––attracting the healthy people out of the old more regulated pool leaving the legacy carrier with a sicker pool.Stripping down a health plan is a great time tested way for a predatory insurance company to attract the healthiest consumers at the expense of the legacy carrier who is left with the sickest.
- It’s a 1990s idea that that fails to recognize the business a health plan is in in 2014. Health plans don’t just cross a state line and set up their business like they did decades ago when the insurance license and an ability to play claims was a all a carrier needed to do business. This idea was first suggested by the last of the insurance industry cherry pickers back in the 1990s and it has long outlasted its relevance.Continue reading…