Coverage on January 1, 2014 matters

Contrary to the views of some, the number of people who have insurance coverage through the Exchanges as of January 1, 2014, matters to everyone.  It matters because the pool that exists on that date will determine, at least for a while, whether the premiums charged by insurers in the Exchange are likely to be stable and the extent of the federal government’s multiple obligations to subsidize plans purchased on the various Exchanges. It is not as if insurers get a claims paying holiday simply because more and healthier people may enroll later in the year. It also matters because a major point of the Affordable Care Act was to increase in an efficient and relatively painless way the net number of people who have insurance or social protection against significant illness.  If the numbers in the Exchanges and in the expanded Medicaid program do not way more than offset the number of persons who lose their insurance as a result of the ACA, or if the cost of extending health protection in this fashion proves too high, the ACA will not have accomplished its goals.

Given the chaos that has erupted as procrastination strains Exchange infrastructure and deadlines are repeatedly extended, it is difficult to tell right now whether the ACA is performing as hoped. A few things are clear, however. The first thing is that the Obama administration is not releasing the sort of information from which an objective assessment could be made.  Platitudes such as “Millions of Americans, despite the problems with the website, are now poised to be covered by quality affordable health insurance come New Year’s Day,” from President Obama at his last press conference are just not a substitute for knowing how many people have enrolled in the plans in the various Exchanges, and more importantly, have paid for coverage. What are their ages? How about some real numbers as a Holiday present?

Second, the Obama administration is acting as if a large number of enrollees in the aggregate is the measure of success. This is simply not true. Putting aside the problem of it being paying customers rather than mere enrollment that ultimately matters, meeting or exceeding projections in some states does not compensate for deficiencies in many other states.  Because the pools are state-based, Texas insurers and insureds are not helped if enrollment in New York or Connecticut exchanges ultimately equals or exceeds targets. The insurance market in Texas and many other states will still be unstable with some insurers likely pressing for significant premium increases, contemplating withdrawal from the Exchanges, and demanding larger subsidies from the federal government via Risk Corridors and other programs.

Third, even those who have been on the more pessimistic side of matters, must acknowledge that there has indeed been a surge in many state Exchanges and in many states covered by the federal Exchange. On December 11, I wrote: “With a decent last minute kick, it is not unimaginable that California could make 1/3 of its total by the December 23, 2013 deadline and get closer to its ultimate goal by the end of March.” With enrollments at 17,000 per day, California may in fact be there. Colorado, which previously had dismal enrollment numbers, reports 33,356 enrolled as of Monday, which puts it at of the 136,000 projected enrollment for 2014 and 52% of the way towards the Obama administration’s projections for this time of the open enrollment season. (33356/(0.47 x 136000)). Other states such as New York and Connecticut, which previously were doing better than most, have also reported a high pace of enrollment.

Whether that surge has been as large in many other states remains to be seen. Proponents of the ACA like to cherry pick their states with at least as much zest as opponents do. Perhaps both sides share the belief that insurance enrollment is at least much a social phenomenon as a purely economic one. Numbers for large states (with large numbers of uninsureds) such as Texas, Florida, Georgia, Indiana,  Illinois, North Carolina and Florida have yet to report any numbers that I have seen.   And, as mentioned above, even if California and New York and some other states have enrollment sufficient to forestall premium instability and possible entrance into an adverse selection death spiral, that will not greatly help states in which enrollment ends up being less than half of that projected.

Finally, we need to look beyond the last minute holiday rush for health coverage and see what happens between now and March 31, 2014. The carrot of the ACA has basically been eaten for 2014.  If you wanted health care coverage and could afford the prices on the Exchange it made little sense to wait until after the December deadline to acquire it.  This is all the more true given that the President has permitted people to game the system by simply enrolling in a plan now and deciding until January 10, 2014, whether to pay.

Now, however, the first surge is likely over.  Will there be the needed second surge? All that really remains is the stick: the individual mandate tax penalty.  Many people, including me, believe that even before the events of last week, it was too small in 2014 to achieve its goal of inducing enrollment by those in good or average health.  The number of people for whom insurance would not be a good deal at, say, $2,000 a year net but for whom it would be a good deal at (effectively) $1,705 per year ($2,000 – the $295 per person tax penalty) is not likely to be enormous. This is so because ACA premiums often depart greatly from actuarial risk by their prohibition on medical underwriting, accurate age rating, gender rating and their — shall we say — loose enforcement of tobacco rating.

Moreover, with the administration exempting last week upwards of half a million people from the individual mandate, the number of people who need fear the stick got even smaller.  So, yes there are mega-procrastinators or people who have been stymied by the dysfunctionality of various Exchange website in obtaining coverage. There are former skeptics who see their neighbors helped by health insurance coverage under the ACA and who now enroll just as there may be some turned off by whatever problems emerge in administration of the plans.  On balance, I would not be surprised to see modest increases in enrollment between now and the middle of March.  I remain highly skeptical, however, that there will be a second surge equivalent to what has occurred this past week.  As they say, however, only time will tell.

Personal Note

I am enjoying a family vacation in the Colorado mountains this winter holiday.  It’s snowing outside my window as I write this and the beauty of a quiet snowfall can eclipse what may seem so important at other times. So please continue to read ACA Death Spiral periodically, but don’t expect a huge amount of activity for about the next week.  I’m confident we’ll be back exploring issues in the new year.


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Three questions for President Obama this afternoon

President Obama is holding a press conference this afternoon before he leaves on vacation.  Here are three questions I would put to him.

1. A number of small businesses will receive cancellation notices sometime this year because their plans no longer conform with the Affordable Care Act. There’s some controversy about how many such notices will go out, but clearly millions of people will be affected. Will the protections you have now afforded to individuals who had their plans cancelled this year such as exemption from the individual mandate and the ability to uncancel their policy likewise apply to small employers and those insured by them?

2. Your Solicitor General argued to the Supreme Court that the individual mandate, what you called the minimum coverage provision, was crucial to the Affordable Care Act, that it, unlike other provisions of the ACA were inseverable.  Here are quotes from pages 46 and 47 of the brief filed by your Solicitor General:

It is evident that Congress would not have intended the guaranteed-issue and community-rating reforms to stand if the minimum coverage provision that it twice described as essential to their success were held unconstitutional.

It is well known that community-rating and guaranteed issue coupled with voluntary insurance tends to lead to a death spiral of individual insurance.

Given the arguments made on your behalf, which may well have been correct, why are you not concerned that exempting more individuals from the individual mandate will not, as the insurance industry is complaining, destabilize the insurance markets and threaten the success of your legislation?

3. Are you concerned that while things are going better in some states such as New York, in many states such Oregon, Maryland, Texas there are a very low number of people enrolling in plans on the individual Exchanges so that even the most massive surge will not correct the situation before coverage begins January 1 or perhaps even before the end of March. Everyone agrees that low enrollment increases the risk that the markets in these states will become unstable?  If that risk materializes, what is Plan B?  What plans do you have to address the situation in those states?

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Just read Avik Roy this morning

Avik Roy has saved me a lot of time this morning with a brilliant post on the Forbes website. Read it.

Or at least read these excerpts.




Request for readers

1. The web site does not even let one access Catastrophic plans if one is over the age of 30.  The shadow website, does not permit one to do so either probably because it was thought that the number of persons qualifying over 30 would be extremely small. When I just tried to chat with and get the answer, I was told ” Sorry, Health Insurance Marketplace Live Chat isn’t available right now. We’re having technical problems.” I have thus not yet been able to figure out what the prices are for someone over 30 with one of the new “hardship” exemptions.  If anyone can figure out what prices over-age hardship exemption folks pay for a section 1302 Catastrophic Plan, please contact me.

2. How many people have purchased these Catastrophic plans anyway?  The federal government has not released metal tier distribution data, but the data from a few states suggests that it is an extremely low number.  Many under the age of 30 can stay on their parents plans and others find that it is not much better than a Bronze Plan or, under some circumstances, a worse deal.  I would bet that  the overall number of Catastrophic Plan enrollees thus far is less than 20,000. There is no subsidy for Catastrophic Plans. What would actually happen if people took advantage of the Secretary’s hardship exemption and instead of just pocketing the tax savings, these older insureds purchased these Catastrophic Plans.  Could be the over 50s could end up being a greater number than the under 30s. We will see if I ever get an answer to question 1 above, but I suspect the insurance industry did not price the policies on the assumption that older enrollees would predominate.



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Obama administration shocking decision to drop individual mandate — but only for some

I’m going to have to wait until tomorrow to say much more, but the Obama administration issued a shocking decision late today to exempt those who had individual policies cancelled this year from the individual mandate contained in the Affordable Care Act.  The Wall Street Journal apparently broke the story.  Here is the New York Times article.  Here is a Washington Post article from a strong Affordable Care Act supporter. Here is the Huffington Post article. Here’s Fox News. (CNN has yet to publish anything I can find on the subject) Not surprisingly, the insurance industry has already protested the apparent move. “This latest rule change could cause significant instability in the marketplace and lead to further confusion and disruption for consumers,” said Karen Ignagni, president of America’s Health Insurance Plans, the industry’s main trade group.

A copy of the decision, made thus far only in a letter from Secretary Kathleen Sebelius to six senators (all of whom are apparently facing tough re-election battles) is here.

Excerpt from Sebelius letter to senators
Excerpt from Sebelius letter to senators


The purported legal basis for the exemption comes in 26 U.S.C. 5000A(e)(5), which reads:

(e) Exemptions

No penalty shall be imposed under subsection (a) with respect to— …

(5) Any applicable individual who for any month is determined by the Secretary of Health and Human Services under section 1311 (d)(4)(H) to have suffered a hardship with respect to the capability to obtain coverage under a qualified health plan.

The Obama administration is now apparently interpreting having to comply with the mandate itself — but only after one’s individual insurance policy was cancelled — as the requisite hardship. A prior regulation issued on July 1, 2013, by HHS had taken a narrower view of what the requisite hardship was:

(g) Hardship—(1) General. The Exchange must grant a hardship exemption to an applicant eligible for an exemption for at least the month before, a month or months during which, and the month after, if the Exchange determines that—
(i) He or she experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase an essential expenses that prevented him or her from obtaining coverage under a qualified health plan;
(ii) The expense of purchasing a qualified health plan would have caused him or her to experience serious deprivation of food, shelter, clothing or other necessities; or
(iii) He or she has experienced other circumstances that prevented him or her from obtaining coverage under a qualified health plan.

I look forward to hearing from others, and in particular from people with a commitment to the rule of law who previously have supported the ideas behind the ACA, but it is not clear to me that any of the pre-existing bases contained in this regulation for claiming a hardship exemption would apply to having a predicted cancellation in one’s individual insurance policy. Maybe at this late hour there are arguments and other documents I am not considering. Surely, however, the existence of the ACA itself can not be the human-caused event creating the hardship. Moreover, I have trouble seeing how the cancellation of a plan makes it more difficult for these individuals — as opposed to others in similar circumstances — from obtaining coverage under a qualified health plan.  I can well imagine cynics saying that the only real hardship involved here is having believed President Obama when he said that if you liked your health plan you could keep it and thus not having saved up for the higher prices that often exist in policies with “Essential Health Benefits.” Of course, if , as the Obama administration has claimed, many of these cancelled policies were junk that the policyholder should be glad to be rid of, it becomes yet more challenging to see much of a hardship at all in being offered real insurance coverage with all of its greater benefits.

In any event, it does not take a fertile imagination to foresee legal challenges to this limited exemption from those not fortunate enough to have had health insurance in the past but who are not being given a similar exemption from the individual mandate. I can easily see challenges based on failures of administrative procedure and equal protection.

The Death Spiral

I and others will need to think hard about the issue of magnitude. Obama administration officials are reported as having stated at a briefing that all but 500,000 of those with canceled policies will be enrolling in policies under the Exchange. This claim, however, is impossible to reconcile with existing enrollment statistics and assertions that millions of individuals have had their individual policies cancelled.  It is difficult to see how this decision would not exacerbate at least somewhat the risk of an adverse selection death spiral overtaking the Exchanges in many states.  The tax created by the mandate has always been justified as necessary to induce people of low or moderate risk to join those of higher risk in purchasing policies on the Exchange. By now exempting perhaps millions of people from this requirement — and, in particular, people who are most likely to have satisfied medical underwriting in the recent past — the Obama administration decision will likely diminish enrollment, at least somewhat, in the insurance Exchanges and, correlatively increase price pressures and insurer losses during 2014. To the extent that insurers systematically lose money as a result of this apparent decision, the federal government will be spending millions more — perhaps hundreds of millions more — in payments under the Risk Corridors program.


There’s one more implication we need to think about.  Although experts vary greatly on the magnitude, clearly a number of small businesses are going to lose their health insurance policies this coming year for failure to conform to the new ACA requirements.  This is the “second wave” that is sometimes spoken about. Are the significant number of employees and dependents who are thus subject to a risk of loss of coverage likewise going to receive an exemption from the individual mandate?

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Rhode Island and Nevada data suggests many “enrollees” are not purchasing policies

Under intense pressure from the Obama administration to do so, the America’s Health Insurance Plans’ (AHIP) Board of Directors announced yesterday that health plans are “voluntarily” extending the deadline yet again for consumers to pay their first month’s premium. So long as the individual selects a plan by December 23, 2013, the individual will apparently have until January 10, 2014, to pay their first month premium and get coverage retroactive to January 1. Some states with their own Exchanges may impose different deadlines; the AHIP announcement is not binding on them.

The decision may boost the number of persons who end up with actual coverage in January but encourages people to play games with their insurance. It also further corrupts any meaning that might be accorded to the current metric of ACA success: the number of people putting a plan in their shopping cart.  With the extension of the deadline until past the coverage date and the potential for retroactive coverage, it now makes sense for virtually every American to enroll in the ACA.  This is true even of people who think the odds are extremely slim that they will ever actually purchase a policy. One just selects a plan free of charge before December 23  — personally I might pick a lavish Platinum one — but then decides whether to pay the premium and obtain retroactive coverage if and only if their health goes bad between January 1 and January 10 (or they would otherwise have purchased the policy).  Expect anecdotes of people paying their insurance premiums for retroactive coverage right after they get the bill from the doctor or hospital.

Why would the Obama administration facilitate games with health insurance purchases?

One reason the Obama administration may have taken the unusual step of permitting people to purchase health insurance retroactively is that it is concerned about its ability to handle large amounts of payments between now and the original deadline.  Recall that the back end of is not functioning ideally. Data from Nevada and Rhode Island hints, however, at another reason that the Obama administration might have made this unusual request of insurance companies. These are the only two states that I can find that have released information on both the number of people who have selected a plan and the number of people who have actually paid so far for coverage.

The conversion rate in Rhode Island is 61%; the conversion rate in Nevada is a miserable 23%.

If these two states are representative of others on which the Obama administration indeed has secret data, perhaps more than a third of those counted as “enrolled” by virtue of putting a plan in their shopping carts may not have actually committed to pay for them. That figure could easily be as low as one half. It would then be yet less surprising that (a) the Obama administration has selected shopping cart placement of the metric for success and (b) keeps repeatedly extending the deadline people have to pay their premium bills.

Rhode Island

The data released by Rhode Island on December 13, 2013, covering the period through the end of November, 2013, shows that of the 2,649 it reported as having selected a plan, just 1,611 had accompanied that selection with a premium payment, a 61% conversion ratio. In other words, 39% of the enrollments are provisional.


The data from Nevada from an earlier time is potentially worse.  November 12 Tweet shown below from Nevada HealthLink shows that at that time, when about 2,000 Nevadans had selected a plan, only 513 had paid for it. This is a conversion rate of roughly 26%, 74% would not have paid for the policy.

Data more recently reported in The Las Vegas Review Journal suggests that the low conversion rate may be getting even worse in Nevada. It reported today as follows:

The exchange didn’t release new sign-up numbers by press time, but it said on Dec. 10 that 6,629 consumers had selected qualified health plans, including 1,800 in the first week of December alone. It also told the Review-Journal on Friday that 1,537 people had actually paid for premiums.

If, so, even with the passage of time, the conversion rate is now just 23.2%.  This figure is consistent with reports from some inside the insurance industry. To be sure, this data is still early. And surely an additional number of those who selected after December 10  have now paid along with those who selected a plan after that date. But unless a lot of people are getting out their credit cards to pay health insurance premiums this holiday season, the conversion number in Nevada is rather frightening. Nevadans are likely experts in gaming, and the Obama administration’s pressuring of an acquiescing insurance industry to permit retroactive coverage gives them and gamblers everywhere an additional opportunity to beat the house.


Fun question for lawyers and law students

Why isn’t this collaborative extension of an offer to contract a violation of section 1 of the Sherman Antitrust Act? Hint is here.

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California provides a detailed look at enrollment in its Exchange

The State of California is doing neither the best nor the worst when it comes to enrolling people in individual healthcare plans on its Exchange (Covered California), but it is doing the best job I have seen in releasing detailed information.  In particular, it has released detailed information on the the age distribution of enrollees, “metal tiers” being selected by enrollees, subsidization rates, and the distribution of enrollees among insurance companies, and rates of enrollment among different language groups.  Let’s look at the data and see what can be learned. And, other states, would you please do what California is doing. You have the data. It’s not that hard to put out the numbers.

Age Distribution

As shown in the paired bar graph below, the distribution of enrollees in individual Exchange plans by age in California is weighted far more heavily towards those in the older age brackets.  There is, in particular, a dearth of children relative to the large numbers in the population and a disproportionately high number of those in the 55-64 age bracket.

Distribution of enrollees by age in California
Distribution of enrollees by age in California

The graphic here is less “bullish” on the enrollment of younger enrollees than Covered California would like to make it appear.  This is because in various press releases, Covered California has been comparing the proportion of younger people enrolled against the proportion of younger people in the population and suggesting that they are similar.  But this is highly misleading because the relevant statistic is the proportion of younger people in the eligible population. The elderly are not eligible to purchase policies on the Exchange.  Thankfully, however, California has released the raw data that lets people do their own analyses. When the results are examined properly, in my opinion, the distribution of the young is more problematic.

Metal Tier Distribution

As noted in an earlier blog entry, a high proportion of purchases of Gold and Platinum policies could be worrisome because those policies are likely to be disproportionately purchased by those in poorer health.  These policies generally have significantly less cost sharing than the Bronze and Silver policies. The chart below, taken from data provided by Covered California, shows that this concern has not materialized thus far in California.  “Sub.” in the graphic shows policies that are eligible for subsidy under 26 U.S.C. § 36B and possibly under 42 U.S.C. § 18071 whereas “Unsub.” shows policies that are not eligible for subsidy. Silver is by far and away the most popular plan selected. And, contrary to earlier information released by California, which initially got matters backwards, subsidized policies are significantly more prevalent than unsubsidized ones.

Distribution of California enrollees by metal tier
Distribution of California enrollees by metal tier

Insurer Distribution

The pie chart below shows the distribution of enrollees by insurer.  As one can see, enrollment in California has been dominated by large insurers. The top 4 insurers have 96.2% of the market.  No small insurers have broken into the top 4. Moreover, some insurers are likely to have problems with the small absolute size of their pool if it does not increase significantly: Valley Health Plan has just 122 people enrolled to date in its health plans; Contra Costa Health Plan has just 178.

Distribution of California enrollees by insurer
Distribution of California enrollees by insurer

Language Distribution

California has released information the primary language of enrollees. As shown in the paired bar graph below, the data demonstrates that English speaking individuals are enrolling at a rate significantly higher than those whose primary language is something else. People whose primary language is Spanish, for example, constitute 28.8% of the California population but only 4.6% of persons who have enrolled to date.


Distribution of California enrollees by primary language
Distribution of California enrollees by primary language

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A tale of two states: Delaware and Connecticut

Two states, Delaware and Connecticut released data today providing contrasting pictures of the rollout of the Affordable Care Act. The news from Delaware is bad for supporters of the ACA; the news from Connecticut is much brighter. Taken together, the news confirms a point I believe bears repeating.

It is a mistake to write a single narrative of the rollout of the Affordable Care Act. There are in fact at least 50 different rollouts of the individual Exchanges and many different narratives, each of which may have elements of truth. Based on what we have seen thus far, there are likely to be some states in which the Exchanges and the policies sold in them are relatively stable and at least the goal of greater access to healthcare is substantially met. Connecticut sure looks like the first poster child for success. There are a number of others, however, such as Delaware, in which, unless there is a massive surge, the individual Exchange based system of policies without medical underwriting will not be increasing access to medical care as hoped and in which insurers are likely to feel increasing discomfort in continuing to write policies under the existing regulatory regime.


As of last Thursday, December 12, 2013, only 793 people in Delaware had selected a plan on the individual Exchange and paid the first premium.  Since fewer than 431 had done so as of the end of November, this means that somewhere between about 25 and 62 people per day are selecting for a plan in Delaware and paying the premium.  This is better, of course, than when was not working, but it is still an inadequate rate of growth in the insurance pool.  If the pace of this “surge” continues for the rest of the year, including the holiday season when attention may be elsewhere,  it means that fewer than 2,000 people in Delaware will have insurance coverage when it begins on January 1, 2013.  Delaware was projected to have 13,898 enrolled through 2014.

The number in Delaware is particularly troublesome for a variety of reasons.  First,  about 265 people from Delaware were previously enrolled in the federal Pre-existing Condition Insurance Program (PCIP), which will end as of December 31, 2013. This means that the number of newly insured Delawareans may be less than the 2,000 discussed above.  Some will just be substituting expiring PCIP policies. Moreover, to the extent the individual policies purchased in Delaware on an Exchange are comprised significantly of people evicted from the PCIP, it means that a significant portion of the purchasers in Delaware will be those known to have high medical expenses.

Second, numbers such as 2,000 on the positive side are troubling due to estimates that 12,000 Delawareans saw their individual policies cancelled in 2013 presumably due to failure to provide Essential Health Benefits. And, even though Delaware is among those states that is permitting insurers to “uncancel,” unless almost all of the insurers do so and unless almost all of their insureds re-enroll, the result in Delaware could actually be an increase in the number of uninsured persons. Moreover, the greater the proportion of Delawareans who retreated back to their faux-grandfathered policies as a result of the Nov. 11, 2013 change of mind by President Obama, the fewer of those mostly healthy individuals likely to offset the more expensive persons enrolling via the Exchange.

Finally, if there end up being, say 2,000 people who purchase policies in Delaware by the time coverage starts, the economies of scale that insurers need to make the system work may not be present.  Some insurers who have, say, higher priced Gold policies may find that there are fewer than 20 people in their insurance pool. Numbers like that don’t work well for the insurance industry.


The news from Connecticut should be at least as encouraging for supporters of the ideas behind the ACA as the news from Delaware should be discouraging. According to information released today, 1,400 people per day are enrolling in individual policies in Connecticut’s own Exchange and the total enrollment is surging up to 20,000. Should the pace of 1,400 per day continue, Connecticut could have 40,000  enrollees by January 1, 2014. To be sure, there is likely to be some shrinkage between enrollment and the actual payment of premiums — a figure Connecticut does not appear to have yet released. Still, having even 35,000 true insureds by the start of 2014 would be a show of great strength and stability for the ACA; Connecticut was projected to have 58,637 enrolled through 2014.

Not only are the absolute numbers encouraging in Connecticut, so too are the characteristics of the enrollees. Nationwide, at last report, only 41% of the enrollees had incomes below 400% of the federal poverty level that entitled them to a subsidy; 59% came from wealthier Americans for whom, perhaps, programs simpler than the stunningly elaborate ACA might have been more sensible. (Note: these figures may be off slightly because, it was released today, California had released its information backwards!)  In Connecticut, however, 70% of the enrollees apparently qualify for a subsidy.  The middle class and the lower middle class are buying to a greater extent. Moreover, the types of policies being purchased in Connecticut, mostly Silver plans, are inconsistent with fears that policies are being purchased primarily by those with higher projected medical expenses.  As discussed earlier on this blog, disproportionate purchases of Gold and Platinum plans could be a harbinger of adverse selection problems.

In short, Connecticut is behaving pretty much as the models used by those who promoted the ACA, thought the rest of the nation would behave. The question now, however, is whether Connecticut and perhaps a few other states will be outliers that happen to conform to the behavior of its neighbor, Massachusetts, on which some of the modeling was predicated. Perhaps, proponents of the ACA should hope, people from Connecticut just procrastinate less and the rest of the nation will rapidly come around to behaving the way that the ACA requires if its projections and aspirations are to bear out.


Delaware is the first jurisdiction I have seen to publish the number of people who have both selected a plan and actually paid the first month’s premium.  Other figures tend to be the larger category of people who have selected a plan. As any electronic shopper knows, there is a big difference between putting something in one’s electronic shopping cart and actually getting the credit card out and hitting “Pay.” So, kudos to Delaware.  I would like to see other jurisdictions follow suit.

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Middle class not selecting plans in the individual Exchanges

No more than 1% of those with household incomes between 139% and 400% and eligible to select a plan on the individual Exchanges have thus far done so. This is the information about those with middle incomes and lower-middle incomes one can derive from statistics released this week by Health and Human Services.   The rate of plan selection among those with incomes over 400% of the federal poverty level is at least 3 times higher than that of persons with middle and lower-middle incomes. It could well be 4 times greater.

No matter how you fine tune the computations, I believe it is fair to say that the middle class is finding the carrots too small and the sticks too small. Some of this may be due to difficulties with the enrollment process rather than the underlying architecture of incentives under the ACA, but either way, most of those eligible to do so, are, at least for now, rejecting the benefit theoretically available to them on the individual Exchanges under the Affordable Care Act.


Here are two figures showing the results of my calculations in more detail.

Rates of Take Up

The first graph shows the absolute rates of take up (selection of a plan) among with lower-middle and middle incomes (the lower surface) and the wealthier (the higher surface).  The x-axis of the graph shows the assumption one makes about those reasonable eligible to purchase policies.  When x is low, one assumes the income distribution of the eligible pool most closely resembles that of persons currently without health insurance. When x is high, one assumes the income distribution of the eligible pool most closely resembles that of persons currently with health insurance form their employer. The y-axis of the graph shows the assumption one makes about the number of persons current with health insurance from their employer who might reasonably be considered eligible to purchase insurance on a health insurance Exchange. A low value of y means that very few of these people should be considered eligible. A high value of y means that 10% of these people should be considered eligible. The z-axis (vertical) shows the fraction of people eligible to do so who have to date selected a policy on an Exchange.

Take Up Rates among the Wealthier (top surface) and the Lower Middle and Middle Income Group (lower surface)
Take Up Rates among the Wealthier (top surface) and the Lower Middle and Middle Income Group (lower surface)

As one can see the values are always less than 1% for the lower-middle and middle incomes. The values for the wealthier depends on the assumptions made but for  all values are below 6% and is frequently below 4%. And these are values for selection of a plan, not for actual purchase of a policy. Those numbers are likely to be even smaller due to many people leaving items in their “shopping cart” without paying at the check out counter.

Take Up Ratios

The second graphic shows the ratio between the take up rates among the wealthier and the take up rates among the lower-middle and middle income group. The x and y axes are the same as before.  A value of 3.4 on the z-axis means that the take up rate among the wealthy is 3.4 times what it is among the lower-middle and middle income groups. As one can again see the ratio is above 3 for almost all assumptions one could make and is frequently above 4.

Take Up Ratios
Take Up Ratios

Show me the calculation

How do I get to these figures? Algebra. Some of it is very nasty algebra, but I have the world’s best computer algebra system, Mathematica, at my disposal to make the problem much easier. Rather than include the somewhat complex computations directly in this blog post, I’m going to include a PDF file showing the computations and a CDF file (a Mathematica file format). You can read the CDF file either with Mathematica itself or with the free CDF Player available here. The data, by the way comes from a combination of  this tidbit of information found on page 7 of the report released  by HHS on  December 11, 2013, and data from the Urban Institute and Kaiser Foundation.

Page 7 of the HHS Report
Page 7 of the HHS Report


Distribution of the Nonelderly Uninsured by Federal Poverty Level (FPL)

Distribution of the Nonelderly with Employer Coverage by Federal Poverty Level (FPL)

HEALTH INSURANCE MARKETPLACE: DECEMBER ENROLLMENT REPORT For the period: October 1 – November 30 (December 11, 2013)



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We should be getting more data on the Affordable Care Act

The Obama administration released critical data yesterday on the aggregate levels of enrollment in the various individual Exchanges.  Most of the journalistic and blogospheric effort in the aftermath has been in trending: do these numbers portend a massive leap forward in Exchange enrollment such that there can be some confidence that the Affordable Care Act will in fact work? Might this alternatively be some sort of temporary surge that is both too little and too late? All of this analysis is completely fine; I’ve engaged in it myself. But there are other issues that should be examined.

Here are five questions, mostly about data, I’d like to see other journalists or bloggers start to pursue. I’m doing some of it myself, but I would love company.

1. What is the distribution of enrollment among the various metal tiers?

If a lot of people are purchasing the gold and platinum plans, that is a sign that the people signing up have poor health and do not want to pay higher deductibles. This is particularly true if the same pattern exists among the enrollees receiving income-based subsidies: they, after all, are mostly purchasing gold and platinum because they need it, not because it easily accommodates their budget.  If, on the other hand, the distribution is weighted towards the bronze and silver plans, that is some evidence that the people signing up may not be coming as disproportionately from the low or middle expense range.  Unless one’s funds are very limited, it does not make sense for someone who knows they will have high medical expenses to purchase a bronze plan. Disproportionate purchase of gold and platinum policies heightens the potential for adverse selection problems to the extent insurers believed the federal government’s models, which assumed only mild “induced demand” for such policies.

Journalists should also continue pressing at the state and federal level for information on age distribution of enrollees; I can see no legitimate reason to withhold it.

2. What is the income distribution of those purchasing policies on the Exchanges? Is the ACA turning into welfare for the wealthy?

The report released by HHS on December 11, 2013, had an important statistic buried on page 7. I’ve highlighted it in the screenshot below.

Page 7 of the HHS Report
Page 7 of the HHS Report

Whoa! Only 41% of those purchasing policies are getting subsidies. The original Congressional Budget Office projections (see Table 3 of this Report)  indicated that only 1 million of the 7 million enrollees (14%) would have incomes that high.  This means 59% of the purchasers have household incomes in excess of 400% of the federal poverty level. Is the Affordable Care Act another form of welfare for the wealthy?

I’m working on some computations for a future blog entry, but my initial sense is that the data so far probably means that the sign up rate among those in the middle class living in families earning between 139% and 400% of federal poverty level is less than a third the sign up rate among the wealthier.  There are more people with incomes in the 139% to 400% group than the 400+% group (look here); there are certainly considerably more people without insurance in the former group than in the latter (look here, in Table 1).  It further means, by the way, that, so far, the individual Exchanges on the Affordable Care Act, with all of their overhead costs and all of the rhetoric expended on them, have probably helped fewer than 100,000 people in the middle class to date. Most of the prospective beneficiaries thus far are in upper income groups for whom a simpler system might have been all that was needed. Anyway, because distributional concerns are relevant to an evaluation of the Affordable Care Act, data on income distribution of enrollees is important.

By the way, for the reported cost of the fancy website, $600 million, one could just have had a lottery and given a Silver or Gold policy to 100,000 middle class people for a year and probably had some change left over.

3. What is the distribution of enrollment by price ranking among the various plans?

If almost everyone is selecting the low-cost plans within each metal tier, what happens to the many more insurers who wrote plans with higher prices?  If those insurance plans have high prices because they have bigger and better networks, those insurers will be concerned that they have attracted a few really, really expensive insureds who want to take advantage of that possibility. Plus, are there insurers who have just said that the administrative costs of insuring a tiny population are not worth whatever upside there may be?  I bet there are insurers in many states that to date have fewer than five enrollees in at least some of their plans. Given that nine states (Alaska, Delaware, Iowa, Mississippi, New Mexico, North Dakota, South Dakota, West Virginia and Wyoming) have fewer than 1,000 enrollees to date and multiple tiers with multiple plans, that almost has to be the case. Are the “losers” in the Exchange thinking, therefore, of pulling out in the future?

4. What is enrollment in the SHOP Exchanges?

One of the forgotten but important features of the ACA is the ability of small business (<50 for 2014) to purchase group insurance for their employees and dependents in state or federally facilitated Exchanges (“SHOP Exchanges”). Insurers inside and outside of the SHOP Exchanges will no longer be  able to rate based on the health or medical claims records of the insureds  or surrogates for it such as gender. They will be able to rate only on the basis of the region, the employer’s mixture of employee ages and, in theory, employee tobacco use. (42 U.S.C. § 300gg). The area may have been forgotten because, the federal website that was supposed to facilitate selection of plans by small employers and subsequent enrollment, abandoned efforts to get the small business portion of its website to work once the individual site failed. But enrollment is still supposed to be occurring by paper at the federal level and through various means in the various state exchanges.

Let’s get some data! How many small businesses have enrolled? Are employers enrolling? How many employees are selecting coverage? How many employers are taking advantage of substantial tax credits to purchase this insurance under section 45R of the Internal Revenue Code? Are insurers concerned that the employers who are enrolling in these health-unrated plans will tend to be those who have a problematic risk profile among their employees and that adverse selection could start to deprive small business of the opportunity the ACA purported to grant.

5. Are insurers in fact “uncanceling” policies where they have been permitted to do so and is anyone buying them?

One of the fears that I and many others raised following President Obama’s “about face” and decision not to prohibit renewal for one more year of certain insurance policies that did not provide Essential Health Benefits or comply with certain other provisions of the ACA was that such a move could destabilize the insurance markets.  To make a long story short, if state insurance commissioners permitted the “uncancellations” and insurers then “uncancelled,” insurers selling plans in the Exchange based on a population that included those mostly healthy people would likely lose more money. We now know that many but not all states are permitting insurers to uncancel.  What I have not seen data on, however, is how many insurers are taking advantage of the opportunity and how many insureds are accepting offers by these insurers to renew.  The larger this number, the greater the threat to insurance sold through the Exchanges or the greater the hit to the Risk Corridors program to make the insurers whole. On the other hand, if few insurers are actually taking advantage of the opportunity and/or few consumers are re-upping, the hypothesized threat to the insurance Exchanges will have been reduced and the number of people potentially hurt by violation of the “if-you-like-your-health-plan-you-can-keep-your-health-plan” pledge will have been kept large.


Getting all this data is likely to be difficult. The Obama administration appears extremely sensitive to release of any data that could diminish confidence in the ultimate success of the Affordable Care Act.  Moreover, some of the data will need to come from insurance companies who have different disclosure obligations than do the federal government and state governments. Still, the questions are important and neither journalists nor the public should ever confine themselves to just the information government is willing or eager to disclose.

Continue reading We should be getting more data on the Affordable Care Act

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The new Exchange enrollment numbers are bad

The federal government announced today that 137,204 people have selected a healthcare plan through the federal Exchange as of November 30, 2013. The number is an increase over the 29,794 who had done so by the end of October, a month during which the website portal for enrollment,, was in disarray. The government reports that 258,497 have now selected a plan through one of the state Exchanges, making a total of 364,682 enrolled. Asked by reporters whether the Obama administration stands by its estimate that 7 million will enroll in individual plans sold on the various Exchanges by March 31, 2013, the day necessary to do so in order to avoid a tax penalty,  Michael Hash, director of the office of health reform in the federal Health and Human Services Department, said that they were “on track, and we will reach the total that we thought.”

The pace of enrollment announced by the federal government today is inconsistent with the claim that its 7 million goal will be achieved. The claim rests on hopes of two surges, one taking place over the next 12 days before the December 23, 2013, deadline for coverage starting January 1, 2014 and a second surge taking place as we approach the end of March at which point, if coverage has not been obtained, many Americans will be hit with a tax penalty.

The magnitude of the surge required strains credulity.  A scenario in which most of  those who wanted coverage have already applied and in which the pace of enrollment stays the same or even sags for lengthy periods as we go forward would appear almost as likely. Plus, it seems unlikely that there will be major enrollment between December 23, 2013, the first deadline, and March 23, 2014, the second deadline. If someone wanted coverage, they would try to get it earlier. What does applying in the middle of February accomplish? Moreover, if, given the unpredictability of human behavior, the surge actually materialized, it might well strain the government’s computer systems.


There are many disturbing aspects to today’s release of numbers. First, forget for the moment about the March 2014 projection date and the March deadline.  There are only 12 shopping days left before the pool will be closed for those who will have coverage as of January 1, 2014.  Even if the pace of enrollment surges by a factor of 10 over what it was for the last two weeks on which we have data and enrolls people at 45,000 per day, that would still put only about 668,000 persons enrolled through the federal Exchange as of that deadline.  Even this rather cheery estimate would result in only 14% of the 4.8 million the Obama administration has projected will be enrolling in the federal Exchanges in 2014.  The original projections for enrollment on opening day, January 1, 2014, were considerably higher, 3.3 million.

The number enrolled as of December 23, 2014, matters greatly. While of  course there could be a second surge, in the mean time insurers are having to pay claims for three months on those first 14% to enroll. The initial enrollees are very likely to be comprised disproportionately of people with above average health care expenses. The result will be that, until that prayed-for second surge occurs, insurers will likely be losing large sums of money in the Exchanges and, ultimately, seeking reimbursement pursuant to the Risk Corridors program from the federal government and, derivatively, taxpayers.

Moreover, the aggregate numbers mask the fact that there are 50 different sets of Exchanges. While numbers are better in some, there are many jurisdictions in which there are huge problems.  It is not “OK” if the Exchanges succeed in California, New York and a few other states if insurers and insureds in many other states suffer severe adverse selection problems that result in rapidly rising prices or reductions in availability.

Let’s look at a few states. I start with Texas. There, out of 780,959 projected to be enrolled, there are 14,038 as of the end of November.  This is fewer than 2% of the ultimate projected amount.  Even if one assumes that enrollments in Texas surge to go 20 times faster in December than they did in November, which is a pretty heroic assumption, this would still result in only 183,425 being enrolled as of the December 23 deadline. This would be  only 23% of what needs to occur. It would be as if a football team were down 35-3 in the 3rd quarter and hoping to make a comeback. It could, I suppose, happen, and you shouldn’t turn off the TV set, but the probabilities are remote.

One might argue that Texas is an exceptional case due to the degree of hostility prevailing among many here about “Obamacare.” Take another fairly large state using the federal Exchange, Pennsylvania. There, we see 11,788 enrolled out of 268,858 ultimately projected, just 4.4%.  To get to even 1/3 of the ultimate projected number being enrolled by December 23, the pace for December would have to be 6 times greater than it was in the last two weeks of November. Not impossible given procrastination, but again, a major challenge.

The figures when one looks to the various state Exchanges are a mixed bag. The poster child for the Obama administration would appear to be California. It has 107,087 of the 691,016 it ultimately hopes to enroll, over 15%.  With a decent last minute kick, it is not unimaginable that California could make 1/3 of its total by the December 23, 2013 deadline and get closer to its ultimate goal by the end of March.  But even with these better-than-average numbers, there is the risk of at least some adverse selection in a pool substantially smaller than projected. Also doing better than many is New York. There, we see 45,513 enrolled. But even this is but 11% of the 411,304 projected. It will again take a major surge over the next 12 days if New York were to get to even 1/4 of the ultimate projected enrollment by the December 23 first deadline.

But for every California or New York running its own show, there is an Oregon or a Maryland. These are large states in which enrollment is lagging. In Oregon, owing substantially to the collapse of its computer system, only 44 people have enrolled in plans on their Exchange. It will take an unimaginable surge there to make the system functional. Officials there and in Washington, D.C. will soon need to start contemplating what to do about a failed system; will, for example, tax penalties be imposed for those in Oregon who do not have health care coverage? In Maryland, where the director of the program recently quit, just 3,758 have enrolled out of 91,528 projected, just 4.1%. It goes beyond hope and into the realm of fantasy to believe that Maryland is not going to have a serious adverse selection problem starting January 1, 2014, when those 3,758 who penetrated the state’s application system start filing claims.

Finally, nowhere in the release do I see an age distribution of those enrolling. Unquestionably, the administration has this information. It is required in the enrollment process. And, perhaps this is a bit cynical, but I have to think that if those numbers looked good, if the hoped-for proportion of younger persons were enrolling, the Obama administration would release the information.  I believe we are entitled to draw a negative inference from the fact that the information was not released that the pool is disproportionately elderly. If this is correct, what we are seeing is a small pool composed disproportionately of the elderly. That does not augur well for those who want to see the promises of the Affordable Care Act fulfilled.

An Experiment

HHS was kind enough to include a graphic in their report. Here it is.

Cumulative enrollment in the federal Exchange for various states
Cumulative enrollment in the federal Exchange for various states

The graphic plots time on the x-axis and cumulative enrollment on the y-axis. Recognizing all the enormous problems with doing so, I thought it would still be interesting to try to fit a curve to the data and extrapolate it out to see where we might end up.

The short version is that if we extrapolate the curve using quadratic and cubic models, we end up at between 278,000 to 383,000 enrolled in the federal system by the December 23, 2013 first deadline. This would represent fewer than 10% of the ultimate projected enrollment and will create substantial adverse selection problems for at least the first three months of the program, particularly in the less enthusiastic states. This all assumes, of course, that all people who have selected a plan actually pay the premiums. The numbers could be worse. Regardless, insurers are going to be very concerned if these are the sort of numbers that materialize; the federal government better get out its Risk Corridors checkbook to help relieve the pain.

By March 23, 2013, however, the same models show we could be at 1.35 million to 3.94 million, depending on the model chosen.   This would represent 28% to 82% of that originally projected and would cause serious adverse selection problems at 28% or mild adverse selection problems at 82%.  I appreciate fully that these are large error bars but we just don’t have the data or an a priori model that permits me to extrapolate with any confidence this far into the future.

Here’s a graphic showing these results.  The Mathematica notebook that generated them has been placed here on Dropbox.

Extrapolation of enrollment data
Extrapolation of enrollment data


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