Category Archives: Breaking news

Bombshell: United Healthcare thinking of exiting Obamacare

Today’s news that United Healthcare is “evaluating the viability of the insurance exchange product segment and will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017” is a very big deal.  United would not be disclosing to shareholders that it might fully or significantly exit Obamacare in 2017 if this was not a significant possibility.

United is a major player in the Exchange markets.  It sells policies in about 47% of the 395 rating areas serviced by the federal exchange. Moreover, the loss of United could be very harmful to any remaining competition of the exchange markets.  A quick study of data from healthcare.gov shows that if one looks at Silver plans in rating areas in which United sells a policy and one looks at all plan types (HMO, EPO, POS,PPO), there are 204 combinations.  In 73 of those (about 36%), United is the only insurer, meaning that if no one else steps in to the United vacuum, there will no longer be a seller of that plan type.  HMO plans in Alabama rating area 13 is an example of such a market. If United exits, it would appear that there will be no HMOs in that area.

In another 59 of those 204  (about 29%) rating area/plan type markets in which United participates, United is one of only two players.  An example of such a market is the POS market in  Arkansas, rating area 1. There, UnitedHealthcare of Arkansas, Inc. and QCA HealthPlan are the only sellers. This means that if no one else steps in, there will be  another large chunk of markets in which there will be an Obamacare monopoly.

Moreover, the problems United is evidently facing do not appear to be the result of particularly low prices.  The graphic below shows for each of the 204 market-plan type combinations in which United is present,  the ratio of United’s  its median price for policies to the median of all prices. It shows United prices tend to be fairly close to the median and, if anything, tend to be a bit higher.  Thus it will be a challenge to ascribe United’s failures to any sort of extreme pricing — a fact suggesting that either United had problems on the cost side or simply that it is now facing up to a fact that some other large insurers may wish to deny: Obamacare is in trouble.

unitedpremiums

The ACA simply does not work without voluntary insurer participation.  There is no public option and their closest cousin, the coops are mostly dead or in financial distress.  It surely should work better if there is at least some competition.  But insurers don’t voluntarily participate where they think they can’t make money.  So, unless United, one of the biggest health insurance carriers, is doing something particularly wrong or has unduly gloomy management, one has to worry about its warning being an oracle of things to come for other insurers.

Note

In contrast to my usual practice, I have revised this entry fairly heavily during the course of the day.  I think it is important to get the information out there and I hope readers excuse some instability in the entry.

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Bad news for Obamacare: Insurers lost a lot of money in 2014

In testimony before Congress last June,  I think I may have shocked some Representatives by estimating that insurers selling policies on the individual exchanges as part of the Affordable Care Act would be sufficiently unprofitable that they would get only 37% of what they would have received under the Risk Corridors program had the federal government not required that the budget for that program be balanced.  It turns out, however, that my gloomy estimate was, in fact, wrong — but only because it was far too cheery.  In fact, according to data released yesterday, insurers will receive only 12.5% of what they thought at one time they would receive.  There is a $2.5 billion shortfall between the money taken in under that program from profitable insurers and the money now owed to those who lost money, at least as the government measures it.

The shortfall spells trouble for Obamacare in a number of ways.  And it is difficult to overestimate how troubling this development should be for supporters of that program.

Some Exchange insurers are likely in serious trouble

First, it likely means that some of the smaller insurers who, at least  before passage of section 227 of the Cromnibus bill last December,  had anticipated receiving full payment for the money the government owes under the Risk Corridors program, are going to find themselves with a serious cash flow problem. Some may even find  themselves with solvency problems given the improbability that the full amount of the Risk Corridor obligation will ever be paid.  Companies that had booked Risk Corridor payments as receivables valued at 100% of the face amount, may have to start writing off at least part of them off as uncollectable.  Thus, when CMS says that the government’s inability to pay 87.5% of what it owes may create “some isolated solvency and liquidity challenges,” that is likely an understatement. Fortunately, as the Wall Street Journal reports, some insurers apparently saw the handwriting on the wall and accounted for the Cromnibus limitation properly so as not to deceive shareholders or state regulators.

Bad news for Exchange premiums

Second, it augurs severe pressure on insurance pricing in the healthcare exchanges.  The reason that there is a $2.5 billion shortfall is that a lot of insurers lost a lot of money selling policies on the Exchanges during 2014.  Insurers, like other businesses, have this habit of trying to make up for past losses by charging more in the future.  So we will see later this month some of the effect when the Obama administration releases data on premiums for 2016, but the massive losses in 2014 shown by the Risk Corridors results is likely to add to pricing pressures.

The Obama plan to rescue insurers has failed

Third, it shows that broken promises have consequences.  Let’s go through some history here.  Remember the infamous promise, “if you like your healthcare plan, you can keep it.  Period.”?  That was, of course, not exactly true in light of what the statute actually said.  And, when Americans saw their policies cancelled as a result, the Obama administration decided it would delay and relax enforcement of the various provisions of the ACA that would have killed enough many non-Exchange insurance plans.

But this refusal to salvage the political rhetoric by sacrificing the language of the statute got many insurers angry. The insurershad priced their policies on the assumption that of course the Obama promise was the usual political moonshine and that those healthy insureds previously owning now non-compliant policies would migrate their way over to Exchange policies and stabilize that market.  In true Cat in the Hat Comes Back style, the Obama administration “solved” that problem, as I explained twice (here and  here) in December of 2013, by fiddling with the accounting rules in the Risk Corridors program by making it more difficult for insurers to be deemed to have made sufficient money to owe the government and making it easier for insurers to be deemed to have lost money and thus be owed money by the government.  (Although its pronouncements were a bit cryptic, as I noted last April, the CBO may have estimated that the cost of this gimmick was as much as $8 billion).  Now, however, with the Cromnibus bill prohibiting the Obama administration from dipping into unspecified accounts to pay for Risk Corridors,  which I guess is what they planned since no money was ever appropriated for the program, that last bit of  multi-billion tinkering has backfired.   Insurers will not be paid for Risk Corridors for a long time if ever and, thus, they have indeed suffered a significant loss of a chain of make-it-up-as-you-go-along policies designed to salvage the ACA.

Don’t trust government accounting

Fourth, the Risk Corridors deficit exposes as pure bunkum the statements of many in Washington in the post ACA era — and continuing even today — about the state of the insurance market and the Risk Corridors program. Recall that at one point not too long ago the CBO was asserting that the Risk Corridors would actually make the government $8 billion.  This was done, perhaps not coincidentally, after an effort by Senator Marco Rubio gained prominence to defund Risk Corridors as an insurance industry bailout.  Devoted readers may also recall that I found the CBO’s estimate “baffling,” a bit of cynicism whose sagacity may have improved with age.  And even today with the announcement,  officials at CMS repeated the technically correct and yet practically dubious notion that, yes, there were shortfalls today, but Risk Corridor payments made by insurers in 2015 and 2016 might be enough not just to overcome the 2014 deficit now valued at $2.5 billion but also to make whole insurers who lost money in 2015 and 2016.

And the plea to undo Cromnibus

It is no wonder that former CMS head administrator Marilynn Tavener, now speaking for the America’s Health Insurance Plans, is now saying it is “essential that Congress and CMS act to ensure the program works as designed and consumers are protected.” By “as designed, Ms. Tavenner means  before Cromnibus when Congress, in a spasm of fiscal responsibility, required that Risk Corridors, for which no money was ever appropriated, actually pay for itself just like the Risk Adjustment program.  Translation of Ms. Tavenner: find someone else’s money somewhere to bail out insurers who lost money in the Exchanges.

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Court creates big problems for stability of Obamacare

Judge Rosemary Collyer of the United States District Court for the District of Columbia ruled this afternoon that the House of Representatives could pursue a legal action — had “standing” to use legal parlance — against a representative of the Obama administration for illegally spending money to fund a key part of the Affordable Care Act: cost sharing reductions. The judge did not decide the merits of the claim brought by the House of Representatives, noting that the Obama administration hotly dispute the allegations made by the House.

The judge’s ruling today is of great significance to the future of the Affordable Care Act.   If the House of Representatives prevails on the merits of its claim — which is that Congress appropriated no money to pay insurance companies billions of dollars to provide about 6 million  Americans with policies with much richer benefits than they otherwise would have been entitled to —  the future of the ACA will be cast in doubt.  It will likewise label members of the Obama administration as having undermined the Constitutional structure  and, as I have discussed elsewhere, conceivably expose those spending  and receiving the money illegally to criminal penalties. Success by the House in this lawsuit will not just threaten policies in states that failed to establish their own Exchanges, but health insurance policies purchased on Exchanges in all 50 states. The kicker is that many individuals had believed that the “standing barrier” was pretty strong but that, if it could ever be pierced, the House had a very strong case on the merits.The language of Judge Collyer in her opinion fortifies the House’s position.

I have written about this issue several times. See here and here.  Let me provide a summary. From all appearances, Congress did not directly appropriate money for a critical part of Obamacare that keeps premiums low: the cost sharing subsidies created by section 1412 of the law and now codified at 42 U.S.C.  § 18071.  The idea of this provision is that poorer purchasers can purchase a policy for “Silver” prices that ordinarily would have 30% cost sharing, but receive a policy that provides anywhere from “Silver plus” (27%) to “Platinum-plus” (6%) levels of cost sharing.  This way, lower-middle-class people can get a policy that they might be able to afford without much of its purpose being undone by hefty deductibles and copays.

It appears clear that Congress at least strongly contemplated that provision of these extra benefits to the poor would come not from higher prices for policies paid by wealthier purchasers on the individual exchange.  Instead, the federal treasury would pay the insurers for the extra costs they incurred in offering these more generous variants of the policy. And it appears that the Obama administration has been making such payments to insurers, even if the amount of the payments — potentially in the billions —  has not been made clear.  The problem, as outlined at some length in Judge Collyer’s opinion, is that Congress never actually made a specific appropriation to fund the cost sharing reductions.

What Judge Collyer says quite clearly in her opinion in United States House of Representatives v. Burwell  is that mere contemplation to fund is not enough.

Appropriation legislation “provides legal authority for federal agencies to incur obligations and to make payments out of the Treasury for specified purposes.” Id. at 13. Appropriations legislation has “the limited and specific purpose of providing funds for authorized programs.” Andrus v. Sierra Club, 442 U.S. 347, 361 (1979) (quoting TVA v. Hill, 437 U.S. 153, 190 (1978)). An appropriation must be expressly stated; it cannot be inferred or implied. 31 U.S.C. § 1301(d). It is well understood that the “a direction to pay without a designation of the source of funds is not an appropriation.” U.S. Government Accounting Office, GAO-04-261SP, Principles of Federal Appropriations Law (Vol. I) 2-17 (3d ed. 2004) (GAO Principles). The inverse is also true: the designation of a source, without a specific direction to pay, is not an appropriation. Id. Both are required. See Nevada, 400 F.3d at 13-14. An appropriation act, “like any other statute, [must be] passed by both Houses of Congress and either signed by the President or enacted over a presidential veto.” GAO Principles at 2-45 (citing Friends of the Earth v. Armstrong, 485 F.2d 1, 9 (10th Cir. 1973); Envirocare of Utah Inc. v. United States, 44 Fed. Cl. 474, 482 (1999))

Judge Collyer also appears clear that Congress never appropriated any money for the Cost Sharing Reductions.

Finally on January 17, 2014, the President signed the Consolidated Appropriations Act for 2014, Pub. L. 113-76, 128 Stat. 5 (2014). That law similarly did not appropriate monies for the Section 1402 Cost-Sharing Offset program.8 Indeed, the Secretaries have conceded that “[t]here was no 2014 statute appropriating new money” for the Section 1402 Cost-Sharing Offset program. 5/28/15 Tr. at 27.

 

And all of this spells big time trouble.  Judge Collyer emphatically rejected the argument that the executive branch could increase its power by spending money Congress had not actually appropriated by using “standing doctrine” to prevent anyone from challenging the increased spending.

Once the nature of the Non-Appropriation Theory is appreciated, it becomes clear that the House has suffered a concrete, particularized injury that gives it standing to sue. The Congress (of which the House and Senate are equal) is the only body empowered by the Constitution to adopt laws directing monies to be spent from the U.S. Treasury. See Dep’t of the Navy v. FLRA, 665 F.3d 1339, 1348 (D.C. Cir. 2012) (“Congress’s control over federal expenditures is ‘absolute.’”) (quoting Rochester Pure Waters Dist. v. EPA, 960 F.2d 180, 185 (D.C. Cir. 1992)); Nevada v. Dep’t of Energy, 400 F.3d at 13 (“[T]he Appropriations Clause of the U.S. Constitution ‘vests Congress with exclusive power over the federal purse’”) (quoting Rochester, 960 F.2d at 185); Hart’s Adm’r v. United States, 16 Ct. Cl. 459, 484 (1880) (“[A]bsolute control of the moneys of the United States is in Congress, and Congress is responsible for its exercise of this great power only to the people.”), aff’d sub nom. Hart v. United States, 118 U.S. 62 (1886). Yet this constitutional structure would collapse, and the role of the House would be meaningless, if the Executive could circumvent the appropriations process and spend funds however it pleases. If such actions are taken, in contravention of the specific proscription in Article I, § 9, cl. 7, the House as an institution has standing to sue.

(emphasis added)

So, we shall see. There is more to the Judge’s ruling and more to the lawsuit.  Today’s ruling, however, revives the specter of the judicial branch reducing the likelihood that the Affordable Care Act can achieve the objectives of its supporters.

 

Note:  Kudos to Sarah Kliff and Andrew Prokop, who, though I do not think they share my views on the ACA generally, have nonetheless written (really swiftly!) a good article on today’s ruling.

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Government data shows potentially scary ACA premium increases for 2016

Under the implementation of the Affordable Care Act promulgated by the Obama administration, the federal government publishes a list each June 1 of health insurers seeking to increase their premiums by over 10% from one year to the next.  Today, the Obama administration released their data for 2016. There are a lot of insurance plans and a lot of very high requested increases on the list.

My examination of the data this afternoon shows 661 insurance plans in which a rate increase of over 10% is being requested.  And the increases requested by these insurers is often way over 10%.  The median increase requested by insurers on the list it varies from a low of 12% in New Jersey to 59% in New Mexico.  Median means half the numbers are below the median and half are above the median.  Thus a median increase of 32% in Pennsylvania means that half the insurers there on the list are asking for more than a 32% increase in premiums.

An aggregation of the data is also revealing. If one looks at the median increase in each state, the “median of the median” is 19%. Half of the states are seeing median increases of less than 19% and half are seeing median increases of more than 19%.

Most of the analyses of this data thus far have looked at particular states and found them troubling.  Taken as a whole, however, the widespread significant increases should be disturbing to those who were confident that the Affordable Care Act would continue to result in low premiums.

Moreover, the median figures cited above are by no means the maximum increases requested by insurers. Let us start with some heavily populated states and take a look at some representative high increase requests.  In Texas, Time Insurance is requesting a 65% increase. In Florida, Time Insurance is asking for 63% on one of its products; the better known UnitedHealthcare is asking for 31%.  In Illinois, Blue Cross is asking for a 38% increase on one of its plans; Coventry, also a good sized player, is asking for 34% on another.  In Pennsylvania, a Geisinger plan is asking for 58%; Geisinger is a significant player in that state.  The list goes on and on.

The table

The table below shows the data I was able to mine from healthcare.gov on the rate increases.

State Number of plans reporting Median Rate Increase (Conditional on Rate Increase > 10%) Rank
Alabama 14 24 13
Alaska 13 24 14
Arizona 24 20 17
Arkansas 3 21 16
California 0 N/A
Colorado 0 N/A
Delaware 26 16 28
District of Columbia 8 14 38
Florida 13 18 25
Georgia 27 16 29
Hawaii 6 18 22
Idaho 57 19 20
Illinois 16 15 31
Iowa 30 25 11
Kansas 15 35 3
Kentucky 0 N/A
Louisiana 15 18 26
Maine 0 N/A
Maryland 8 30 6
Massachusetts 0 N/A
Michigan 12 15 33
Minnesota 0 N/A
Mississippi 6 26 10
Missouri 13 16 30
Montana 12 34 4
Nebraska 12 15 32
Nevada 25 14 36
New Hampshire 11 44 2
New Jersey 7 12 40
New Mexico 3 59 1
New York 0 N/A
North Carolina 17 26 8
North Dakota 3 18 23
Ohio 15 14 34
Oklahoma 8 28 7
Oregon 23 20 18
Pennsylvania 51 32 5
Rhode Island 0 N/A
South Carolina 10 24 12
South Dakota 18 17 27
Tennessee 12 14 35
Texas 22 26 9
Utah 31 19 21
Vermont 0 N/A
Virginia 19 14 37
Washington 24 13 39
West Virginia 14 19 19
Wisconsin 12 18 24
Wyoming 6 23 15

Caveats

All of that said, the figures should not be misinterpreted.  The following caveats must be considered.

1. The data only lists those insurers that requested an increase of more than 10%.  There are many plans that requested increases less than that amount.  So it is incorrect to say that the average or median increase in insurance prices is going to be 19%. If a lot of big insurers are requesting increases less than 10%, the average increase will be less than 19%.  On the other hand, if the big insurers are over 19% and it is mostly small insurers that are submitting rate increase requests of under 10%, then the 19% figure is too low.

2. The data is not weighted by the number of policies sold by an insurer.  With all respect to small insurers (and small states), in the grand scheme of things it does not matter much if a small insurer in a small state is raising its rates 40%.  Of course it will affect the people involved, but it is not a good bellwether of the performance of the ACA.  On the other hand, if a big insurer in a big state, like Scott & White in Texas, is requesting increases (as is the case) of 32%, that is a very big deal. Until we have an estimate of the number of policies sold by each insurer, a secret that seems to be more tightly guarded than many diplomatic communications, it is hard to know perfectly what the numbers in the list actually mean.

3. The data for some important states is missing.  We have no data for New York and California, for example, and no data from about seven other states. Does that mean that there are no insurers there requesting more than a 10% increase, that the data is just delayed, or is there another explanation?  Until this mystery is resolved, it’s hard to know fully what the numbers published today imply.

4. Ask does not equal get. All we have right now are the rate increases requested by insurers.  There now follows a review process in which the reasonableness of the rate increases are examined.  If the federal government or, in some instances, the states find the rate increases unreasonable, then they do not go into effect.  Of course, insurers who see their rate increases denied, may decline to sell the policies, which results in less competition and leaves many insureds without any continuity in coverage. Yes, it is possible that some insurers are bluffing and requesting pie in the sky.  The risk in calling that bluff by denying or modifying a rate increase is that the insurer may pull out.

5. I basically did this analysis by hand because CMS has not released the data in a form (such as Excel, CSV, JSON or others) that would facilitate machine analysis.  I tried to do the work carefully, but I am an imperfect human.  I am doubtful, however, that any errors materially affect the conclusions here.

 

 

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Continuing Resolution jeopardizes Risk Corridors

Amidst all the passion yesterday at the roasting yesterday by the House Oversight Committee of Glib MIT Professor Jonathan Gruber and Marilyn Tavenner, Administrator for the Center of Medicare and Medicaid Services, many have missed what may be the most important development of the day: Congress is closer to stopping the Obama administration from funding the Risk Corridors programs that insulates insurance carriers selling policies on the Exchanges from much of the financial risk.  Chapter G of the Continuing Resolution currently in the works  (the “Consolidated and Further Continuing Appropriations Act, 2015”) appears to block the Obama administration’s apparent plan of using a “slush fund” — the “CMS Program Management Account” — to pay insurers when obligations under the program exceed receipts. Many, including the non-partisan Congressional Research Service and Senator Jeff Sessions, believe that the earlier contemplated use of this account to pay for Risk Corridors was unlawful under the Antideficiency Act and Article I, section 9, clause 7 of the United States Constitution (“No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law”).

Page 75 of Division G of the summary of the Appropriations Act of 2015
Page 75 of Division G of the summary of the Appropriations Act of 2015

The inability of the Obama administration to finance the Risk Corridors program is a direct threat to the operation of the Affordable Care Act.  Insurers who priced policies based on the assumption that, if they went too low in their premiums, they would be protected against substantial financial risk by Risk Corridor payments from the federal government, will now be facing — to their surprise — an environment in which at least some of the Risk Corridor payments will not be forthcoming. Insurers contemplating entry  or continued participation into the insurance markets created by Obamacare will now hesitate for at least 2016 — either that or they will price their policies higher to protect against the now assumed risk of loss. The effect for 2015 policies is unclear. In light of the forthcoming Supreme Court decision in King v. Burwell, insurers negotiated for a provision in their contract that gives them the ability to terminate their participate in the program if either cost sharing reduction payments or premium tax credits are not available to purchasers. They are not known, however, to have negotiated for a similar provision with respect to Risk Corridor underfunding and thus might be held by a court to have assumed that risk.

§_261Discharge_by_Supervening_Impracticability_-_WestlawNext
Section 261 of the Restatement of Contracts 2d

 

How severe the effect of this Risk Corridor limitation will be depends on how CMS uses whatever authority remains to make at least partial payments to insurers and, of course, the amount by which obligations under the program exceed receipts.  Suppose, for example, that obligations to losing insurers under the Risk Corridors program are three times receipts from winning insurers.  This means  that losing insurers would receive only 33 cents on the dollar, at least until any future surplus from the program could make them whole.  Such a result would likely infuriate insurers and induce them to seek further regulatory concessions from the Obama administration as a price of continued participation in the ACA exchanges. If as the Obama administration predicted, Risk Corridors will break even or even run a surplus, the limitation in Division G will have no effect at all.

In any event, the Continuing Resolution in which all this is contained is not yet law.  And there are apparently many points of contention — some possibly even more important than Risk Corridors — up for debate.  Who knows what weapons insurance lobbyists will bring to bear in the mean time to rid Division G of this critical limitation?  If, however, Division G’s limitation on Risk Corridor payments survives, expect further trouble in the market for individual and small business insurance created by the Affordable Care Act.

Addendum

It didn’t take long for my prognostication in the last paragraph to bear out.  Insurers are already in an uproar.  As reported in The Hill just now:

“American budgets are already strained by healthcare costs, and this change will lead to higher premiums for consumers and make it more difficult to achieve affordability,” said Clare Krusing, a spokesperson for the America’s Health Insurance Plans.

We shall see what happens.

And a thanks to Professor Josh Blackman of South Texas College of Law for bringing this development to my attention.

 

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No, 10 million have not gained coverage through the ACA

A blog entry by Josh Marshall on the Talking Points blog and largely repeated by Ezra Klein on the Washington Post WonkBlog contends that 9 or 10 million people have obtained coverage through the Affordable Care Act. This statistic, which I am frightened will be repeated by those predisposed to the Affordable Care Act until such time as it is deemed true, is just nonsense.  There is something called “causation” and just because A occurred and then B occurred does not mean that A caused B. There is also this arithmetic operation called “subtraction,” and while one can make a pile of numbers look bigger by neglecting to subtract off the ones that make the result smaller, such an omission corrupts the resulting sum.

Where does the 10 million figure come from?

The 9-10 million figure is comprised from 3.1 million people under the age of 26 who have coverage, 2.1 million people who have allegedly obtained coverage in the individual Exchanges, and 4.4 million who have allegedly obtained coverage through Medicaid expansion.  The graphic shows the computation. Each of the constituent numbers has serious problems.  And there are negative numbers that Marshall and Klein have neglected to take into account.

Marshall-Klein addition
Marshall-Klein addition

The 2.1 million counts people who have not paid for their policies

The 2.1 million figure has problems. It uses the “enrollment” number rather than the “paid for” number.  We don’t yet know the conversion rate between putting an item in one’s shopping cart — perhaps to preserve the right to obtain retroactive coverage — and actually paying for coverage.  Early conversion rates in some states, as discussed on this blog, have been less than two thirds. So, until we know how many people actually purchased policies, the 2.1 million represents an upper bound on coverage, not the actual number.

Mr. Marshall asserts, by the way, that it is “deep and intense form of denial” to say that people won’t pay for their policies.  All I can say is, “let’s see.”  I promise I will post on this blog a very unfun entry titled “I was wrong” if it is shown that at least 80% of the 2.1 million that have enrolled thus far actually get coverage in the Exchanges pursuant to the ACA.  Let’s see if Mr. Marshall is willing to make a similar promise if more than 20% don’t get coverage.

The 4.3 million Medicaid number counts people who would have obtained Medicaid without the ACA

As Klein though not Marshall acknowledges, the 4.4 million number is high because there would have been an expansion in the number of people in Medicaid even without the ACA provisions taking effect in 2014.  Moreover, as Klein has the honesty to concede, “some states are also counting people who’re simply renewing existing Medicaid policies.” So what’s the real number. Klein says he doesn’t know and I can’t say I do either. But, according to data from the Kaiser Family Foundation,  Medicaid enrollment increased by 3.4 million between 2008 and 2009, by 3.4 million between 2009 and 2010, by 2.4 million between 2010 and 2011 and by 1.3 million between 2011 and 2012.  Wouldn’t a fair minded person thus subtract  at least 1 million from the 4.4 million figure? Wouldn’t a fair minded person want to at least mention the issue?

By the way, I know that we are just counting people covered “because of” the ACA, but while we’re at it perhaps we should remember that more people are on Medicaid may not be this unalloyed wonderful thing. Many may be on Medicaid as a result of increased poverty or may be substituting Medicaid other health insurance coverage that they earlier had.

[Note: Following my publication of the original version of this blog entry, Sean Trende published on RealClearPolitics.com a far more detailed and, frankly, better analysis of this number that I have did here. He notes that much of the expansion in Medicaid numbers comes from states that did not in fact expand Medicaid.  His estimate is that the correct number of persons who received Medicaid coverage because of the Affordable Care Act is about 10% of the Marshall-Klein number, perhaps 380,000.]

The 3.1 million number counts people who already had coverage

The 3.1 million number apparently counts everyone under the age of 26 who has coverage under their parent’s policy. But what would the number be “but for” the Affordable Care Act? How many of the 3.1 million are insured “because of” the ACA. First, many insurers were already covering dependents up until age 25 or close thereto.  Two thirds of the states had laws required that they do so. Thank the states, not the ACA. Second, much of the effect is substitution.  Not all, but a good number of these young adults could have obtained coverage on their own through their job or otherwise but, because of the peculiar way many group policies obtained through an employer work, found it cheaper to enroll on their parents plan.  All the ACA does, then, with respect to these people is reallocate where people get their insurance and the costs different types of insurers face.  Actual scholarship conducted by the National Bureau of Economic Research found that found that early implementation of the ACA increased young adult dependent coverage by 5.3 percentage points and resulted in a 3.5 percentage point decline in their uninsured rate.  The National Bureau of Economic Research thus estimated the reduction in uninsured young adults caused by the ACA at least in 2010 at well less than one million.  Nothing to sneeze at, but not the 3.1 million claimed.

By the way, in case you mistrust the National Bureau of Economic Research, take a look at the work of the Employee Benefit Research Institute.  It too found that some young adults were substituting parental coverage for coverage they might have had to pay for through their jobs.  It too found that the ACA had increased the number of young adults with health insurance coverage, but not nearly to the same extent as the claim of 3.1 million made by these bloggers.

The ACA has also caused people to lose coverage

Marshall and Klein may be good at adding fake numbers, but they appear to have forgotten about subtraction (or how to add negative numbers).  There are a number of people who have lost health insurance coverage as a result of the ACA. There are likely to be a yet larger number who lose it when small business has to renew policies later in 2014 and finds those policies considerably more expensive. (I’ll be talking about this issue more in the next month or two). No one knows exactly how many people have lost coverage so far or how many will lose it in “the second wave.” Estimates of the first number range from half a million and up and I have estimated the second number as being many millions.  One would think an honest assessment of the effects of the ACA would not just ignore these negative consequences.  Even President Obama, by giving at least some of those people, a (possibly unlawful) exemption from the individual mandate has not gone that far.

And finally …

The Affordable Care Act can not be defended with the glib “it’s worth it if even just one person got health care coverage as a result.” There are a lot of ways to give people health care coverage and to improve people’s health. How that’s done can determine how much money it costs the government and what sort of a burden it places on individuals and businesses. That’s why it does in fact matter how many people are helped by the ACA and how they are helped.  That’s why it galls me that the grossly exaggerated 10 million figure is likely to get considerable play. If it were true, the figure would matter.  The problem is that it is neither true nor calculated in a way likely to get at the truth. So, when we assess the ACA, could we please stop the nonsense, add up real numbers, and remember about subtraction!

[Note: Following the publication of this blog entry, the Washington Post rated the assertion that 9 million people have gained coverage through the ACA a “Two Pinnochio lie.” It reserved the right to adjust (upwards, I presume) the number of Pinnochios, however, if it turns out that the 4 million Medicaid number isn’t right either.  I believe Sean Trende’s analysis (see above) makes pretty darned clear that the 4 million figure is a serious exaggeration.  I thus expect no fewer than “Three Pinnochios” being attached to the assertion by the time all is said and done.]

[Note: I just checked (February 5, 2014) and darned if the Washington Post didn’t upgrade the lie to Three Pinnochio status — “Significant factual error and/or obvious contradictions.”  See here and here. Good for the Washington Post!]

In fairness …

There are, actually, two things I like about the Marshall/Klein blog entries. The first is that Marshall points readers to the “Gaba spreadsheet.” This is one of several attempts to actually track enrollments under the Affordable Care Act.  It is a useful resource that, in conjunction with other data, should help people speak objectively about the ACA.  The second is their point that the decrease in the number of uninsured would be a lot higher if all states had agreed to expand Medicaid.  Yes, Medicaid would have cost a lot more for the federal government and, possibly, a bit more for the states, and, yes, there are ways other than provision of insurance to give people access to medical care or improve their health,  but the reduction in the number of the uninsured caused by the refusal to expand Medicaid is a point opponents of the ACA need to deal with.  I have this wish that people could stop treating the ACA as this monolith that is either all wonderful or all awful. Disentangling it may prove impossible and improving it may prove very difficult and/or very expensive, but, in the long run, misleading presentations of the facts do not help anyone’s health.

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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

Legality

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.

Implications

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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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, healthcare.gov, 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.

Analysis

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 healthcare.gov 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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