After four open enrollments for the Affordable Care Act (ACA) — all of them during the Obama administration save for the last ten days of the most recent one — the question of stability in the individual-health-insurance market has become an issue.
Many ACA advocates argue that the market is now reaching stability because the medical-loss ratio — the percentage of revenue from premiums that insurers must pay out as medical benefits – is headed toward an acceptable level for many companies.
Things may well be looking more stable if insurance-company profits are the only measure. As I pointed out in a recent op-ed at CNBC, health plans know that subsidized individuals are immune to any sharp increases; Obamacare caps such individuals’ premiums at a given percentage of their income so long as they buy one of the two lowest-priced plans. The result is that, desperate to stem their losses and with no regulatory or legislative relief on the horizon, insurers will just keep raising their rates until they are in the black — something last year’s big rate increases are beginning to achieve.
The problem is that the unsubsidized market is not immune from premium increases. Those buying insurance without subsidies have to pay the full price out of their pockets.
If the insurance companies can take some hope from their bottom lines, what about the people the Affordable Care Act was intended to benefit? A recent report by Mark Farrah and Associates (MFA), based upon state insurance regulatory filings as well as federal data, now provides us with a more complete picture.
The report is particularly valuable because it encompasses all 50 states and the District of Columbia. It also covers the entire individual-health-insurance market — on- and off-exchange, including what the federal government estimates are 1.6 million to 2.6 million non-ACA-compliant policies. It also reflects the condition of the market prior to the recent mischief by the Trump administration to undermine it.
Some key findings:
‐ As of March 2017, the individual insurance market totaled 17.6 people.
‐ That is down from 20.2 million one year prior. This is a decrease of 2.6 million people, a 13 percent drop in the size of the overall individual-health-insurance market.
‐ 12.2 million bought their health insurance on the state- and federally run Obamacare exchanges.
‐ 5.4 million people bought their insurance off of the Obamacare exchanges.
Enrollment is steady among those who receive subsidies but declining dramatically among those who do not.
In the most recent federal report on exchange enrollment, the Centers for Medicare & Medicaid Services (CMS) reported that 83 percent of those buying coverage in the federally run exchanges received a subsidy. Using this figure as an estimate for state-run exchanges as well, roughly 2.1 million of the 12.2 million purchasing on an exchange did not get a subsidy. Combining these individuals with the 5.4 million people who purchased off-exchange — to whom subsidies are not available by definition — a total of 7.5 million people did not get a subsidy, or 43 percent of the total.
(This number makes sense. Census Bureau data from 2015 indicate that 40 percent of all American households have income in excess of 400 percent of the federal poverty level, which is the threshold of eligibility for subsidies.)
Also, MFA published the same report in 2016, facilitating a year-over-year comparison. The on-exchange market fell from 12,681,874 to 12,216,003 individuals, a reduction of 465,871 or 4 percent. However, the off-exchange market fell from 7,520,939 to 5,361,451, a reduction of 2,159,488 or 29 percent. In other words, enrollment is steady among those who receive subsidies but declining dramatically among those who do not.
Much has been made of the question of whether the individual markets are in a “death spiral.” Given that the on-exchange market enrollment is relatively stable, there is clearly not a death spiral in the subsidized market. However, with a reduction in the unsubsidized market of 29 percent in just one year, that pattern certainly looks like one we would expect in a market spiraling down. And insurers have already requested significant rate increases for 2018 as well:
While some analysts are confident the market is improving, the people who do this for a living and actually take risks in these markets — the insurance-company managers — cannot say that.
Meanwhile, here is a map from CMS projecting the dearth of health plans in many counties for 2018. CMS estimates that at least 2.4 million people will have only one plan option on the exchanges. As of July 10, CMS reported that 141 qualified health plans had filed initial applications to offer coverage for 2018, compared with 227 last year, a 38 percent decline.
Finally, I will suggest the real test of whether a health-insurance program is stable is whether the consumers for whom it is intended believe that it provides them with value. Here is a chart of the take-up rate on the federal exchanges under the Affordable Care Act; excluding the “Over 400%” category, all of these individuals are eligible for subsidies. This chart represents data from last year, but with only a 4 percent reduction in those purchasing on the exchanges between 2016 and 2017, it should remain a fair indication of consumer approval of the program.
The health-insurance industry has long considered a 75 percent take-up rate to be the gold standard in evaluating whether an insurance pool is stable — i.e., whether there are enough healthy people signed up to pay the claims of the sick. While the exchanges appear to have achieved this for the lowest-income consumers — those who get the biggest premium subsidies and also have their out-of-pocket costs subsidized — only 17 percent of those making 301 to 400 percent of the poverty level have signed up.
Then there is the Trump administration, which has made matters even worse by threatening to withhold $7 billion in cost-sharing subsidies for the low-income and to undermine the enforcement of what is already a weak individual mandate. In calculating their 2018 renewal rates, some health plans have factored in at least a 15 percent increase just on account of this instability. Others have not factored in any increase but have reserved the right to do so if the Trump administration follows though on its threats.
Are the Obamacare exchanges stable? Consider this:
‐ The 2017 open-enrollment period concluded eleven days after Trump was inaugurated and before he threatened to undermine the market further.
‐ Four heavily promoted open enrollments have taken place run by the Obama administration and the state exchanges.
‐ Federal law has required people to purchase insurance or pay a fine — and the individual mandate was administered through 2016 by the Obama administration. In fact, in 2015, 7.5 million people paid the fine, while 6.5 million paid the fine in 2016, according to the IRS.
‐ Every one of the people in the insurance market earning less than 400 percent of the federal poverty level were eligible for premium assistance — and those below 250 percent of the poverty level were also eligible to have their deductibles and co-pays subsidized.
After all of this, only about 40 percent of those eligible for subsidies have signed up for coverage.
After all of this, only about 40 percent of those eligible for subsidies have signed up for coverage. In what other business or government program would such a dismal acceptance by those it was targeted to serve be considered a success?
‐ The individual-health-insurance market is shrinking, with the unsubsidized market shrinking 29 percent in the last year.
‐ The big rate and deductible increases will continue at least into 2018.
‐ The number of insurance companies participating is on track to shrink by 38 percent in 2018.
‐ After four years of attempts by the Obama administration, no more than 40 percent of those eligible for subsidies availed themselves of the program.
‐ But insurance-company profitability might be improving.
Would you call this a stable market?
— Robert Laszewski is president of Health Policy and Strategy Associates, a marketplace and policy consulting firm.