Is Obamacare enrollment stalling?
That’s the suggestion of a recent New York Times article that basically looks at the enrollment differences between the Patient Protection and Affordable Care Act (PPACA) state exchanges and the PPACA federal exchanges. Many states that had good enrollment for the 2014 season saw little increase in 2015. The federal exchanges did better — but that might just be catch-up as they enroll folks they would have picked up earlier had the exchanges not melted down.
See also: 5 PPACA open enrollment nightmares
If this true, Bob Laszewski argues that it will have pretty serious implications for the long-term health of the exchanges. Remember, the prices we’re seeing right now don’t necessarily reflect what the price will be over the long term, because there are all sorts of temporary cross-subsidies that will expire at the end of 2016. The future path of prices will depend on a lot of things, but one very important factor is the size of the insurance pool.
The magic of statistics tells us that larger insurance pools makes for more stable outcomes, because the larger the population in the pools, the more that random variances in outcomes will tend to average out. If your market only has a few thousand people in it, it’s easier to get a few more cancer patients than you expected, whacking you with big, unexpected costs. The more people you add, the larger the number of people it will take to make your outcomes measurably different from actuarial expectations … and so the less likely this becomes.
Even worse, the smaller the pool, the more likely it is that you’re getting adverse selection. Who is most likely to go without insurance? That’s right: people who aren’t spending very much on health care right now. A few of those people deciding to forgo insurance doesn’t matter much. But if you only end up enrolling 50 percent of the eligible population, it’s a fairly safe bet that the missing 50 percent are disproportionately healthy, and that number is large enough to throw off your projections. This is potentially a recipe for the dreaded “death spiral,” in which the healthiest people drop out, raising the average cost of health care for the remaining sick people, forcing insurers to raise prices, so the healthier folks decide to drop out … a mess. So if the fears expressed in the Times are correct, it’s potentially a very big deal.
But that still leaves us with the question: Are they correct?
One potential piece of supporting evidence: A new report from consultancy Avalere says the exchanges are struggling to sign up the middle class. People with incomes close to the poverty line and who can buy exchange policies for just a few dollars a month are eagerly snapping up the product. More than three-quarters of the eligible folks making less than 150 percent of the federal poverty line have enrolled. But as you get north of 150 percent of the poverty line, the numbers start rapidly declining: Less than half the eligibles between 150 and 200 percent have enrolled, and by the time you get to 400 percent of the poverty line (about $47,000 for an individual), only 2 percent of those eligible have signed up. Avalere says that 83 percent of 2015 enrollees make less than 250 percent of the federal poverty line, which equates to less than $30,000 a year for a single individual.
What does that tell us? People don’t seem to want exchange policies unless there’s a substantial subsidy. Which means that at higher income levels, there could be substantial adverse selection.
However, I think it’s a little early yet to worry.
That’s because Obamacare isn’t all carrots; there are also some big sticks, in the form of mandate penalties. And many of those higher-income folks, who are actually calculating the expected value of buying a policy rather than snapping up a nearly free good, haven’t yet heard about the mandate penalties. They’ll find out when they file their taxes — and as I’ve written elsewhere, they’ll probably find that the penalty is bigger than they’re expecting.
Moreover, that penalty will continue to get bigger for several years, because it was designed with a phase-in; it starts low, then rises to something significant. As more people get hit with bigger penalties for going without insurance, I’d expect to see at least some of them sign up.
Will that be enough to make the insurance pools stable? It’s way too early to say. But by the same token, it’s way too early to say that enrollment is falling short. We’ll find out in three or four years, when the temporary subsidies and the phase-ins have ended, and the program has settled down into something more like its final form.