Tag Archives: Medicaid

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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The Two Million Scenario: What if the Affordable Care Act enrolls a lot fewer people in the Exchanges than predicted?

People can be blinded by dreams in many spheres
People can be blinded by dreams in many spheres

Many people who remain basically positive about the Affordable Care Act are viewing the enrollment statistics like the football fan whose team is 2-6 and who point out that the team could win 7 out of its 8 remaining games and still probably make the playoffs.  Yes, getting off to a really bad start doesn’t preclude a happy ending. Success may still be mathematically possible. But unless there’s good reason to think that the fundamental factors such as poor coaching,  poor game plans or unexpected injuries that have led to the bad start no longer apply, the more reasonable prediction is that things will continue more or less as they have.

It’s time to start thinking realistically about what happens if a core component of the Affordable Care Act, subsidized, non-underwritten health insurance available from private insurers, essentially fails to provide many with better access to medical care. This might not happen in every state — there might be a few whose Exchanges can be deemed “successful” — but it is looking more and more to me as if we are heading for enrollments in many states well, well short of that on which the arguments for the ACA were significantly premised. Indeed, some supporters of the ACA have started moving the goal posts, revising history to say that the real goal of the Act wasn’t to reduce the number of uninsureds but to have an actuarially sound pool. (So the purpose of the Act was to help insurance companies stay afloat?) And it hardly helps enrollment when President Obama urges his allies to hold back enrollment efforts so the insurance marketplace does not collapse this coming week under a crush of new users even after he earlier assured the nation  healthcare.gov  was supposed to be working much better by this time.

For purposes of this blog entry, I’m going to assume that enrollment in the Exchanges ends up being about 2 million for 2014 instead of the projected 7 million.  I can’t rigorously justify that number — but, of course, neither could the pundit who is now saying 4 million. And, if I had time and space I’d prefer to do this analysis under a variety of scenarios, but, for now, the 2 million figure feels about right. And if I were betting on which side of the 2 million we will fall, it would be the lower side. What are the consequences? I can’t address all of them in a single blog entry — and trying to predict matters past 2014 gets very treacherous — but here are some.

And, for those of you who don’t want to read further, here’s the headline:

Insurance sold through Exchanges without medical underwriting — a central promise of the Affordable Care Act — is likely to implode in a significant number of states by 2015 while limping along in several others but providing little net desired decrease in the number of people without quality health insurance.  The silver lining in this failure will be that the program will likely cost less than projected due to fewer number of people receiving subsidies, although this reduction will be partly offset by higher-than-projected subsidies to the insurance industry. Expect significant pressure to grow among supporters of the Affordable Care Act to use these net savings to increase the subsidies available to people buying coverage through the Exchanges and to lure insurers in the problem states back into the Exchanges.

1. The number of people without private health insurance may actually grow

This is so because, if 2 million obtain insurance through the Exchanges but more people (3.5 million is a prevailing estimate from sources ranging from Forbes to Jonathan Gruber) lose their current individual health insurance, that’s a net decrease in the number of insured.  And if we add in the loss of 100,000 or so people from the Pre-Existing Condition Insurance Plan that likewise is terminated or those who heretofore were in various state high risk pools, there is a serious risk that the Affordable Care Act will have decreased the number with private health insurance.

In fairness, I have not taken Medicaid expansion into account. Some may see it as unfair to count just the number of people with private health insurance rather than the number with access to health care through private insurance or public schemes such as Medicaid. And, indeed, in those states in which Medicaid has been expanded — one can’t blame President Obama too much if other states choose not to participate — enrollment has outpaced enrollment in private plans at about a 4-to-1 ratio. This suggests, by the way, that people are willing to use a web site, even some clunky ones, to sign up for health care if they think the price is right.

The rejoinder to the argument that we should consider Medicaid, however, is that an awful lot of political energy and an awful lot of monetary investment has been predicated on healthcare reform benefiting more than just the poor but the middle class too. If it turns out the middle class has, net, been hurt by the 2014 features of Affordable Care Act or has paid a large investment for the 2014 features of a law that, net, does provide little marginal benefit, it’s fair to criticize the 2014 features of the Act for their architectural shortcomings. And, yes, I know all about staying on your parents’ policy until you are 26 and limitations on rescissions, but none of those pre-2014 “achievements” should count in assessing the 2014 record.

2. The number of people with quality health insurance may stay about the same

Yes, there will be people who formerly had no health insurance or who had rotten health insurance who, thanks to the 2014 aspects of the ACA, now have health insurance that covers more.  There are many news accounts from pro-ACA forces providing evidence of this. Here’s one (although all the “success stories” are likely to have high medical claims); here’s another (notice again that the successes are likely to have high medical claims).

But it may well be that for every such success story apparently to be catalogued by paid grants from the government, there is another who had health insurance tailored to their needs (such as policies for the 50 and over set that did not cover maternity expenses) who now find themselves priced out of the health insurance market with its Essential Health Benefits requirement (section 1302 of the ACA). Here’s a website inviting people to post their cancellation notices.  Here are some anecdotes relating such problems (although one always have to be very careful about exaggerations in this arena; see here for a discussion of a particular case by Consumer Reports).  Here’s another.

On balance, though, it’s quite believable that, many of the gains due to subsidization may be offset due to government offering only products that have more “features” than many people are willing to pay for.  To analogize, consider a law that prohibited people from owning either a clunker car (defined somehow) or a car without four-wheel drive. The theory behind the law was that clunkers were unsafe and that four-wheel drive is sometimes useful: even if you don’t need it right now, you might need it or have needed it at some point.  Fair enough. But such a law might not actually increase the number of people driving quality cars that fit their needs. Some people just can’t afford a new car.  And others, who could afford a respectable car without four wheel drive and didn’t think they needed it right then (urban Floridians, for example), might simply decide not to get a car rather than use scarce marginal dollars for cars with features they don’t need. While such a result need not occur — it depends on all sorts of factors — my sense is that this is where we are heading with the Affordable Care Act and its fairly demanding and undifferentiated requirements for coverage in policies sold on the Exchanges.

3.  Federal mandate tax payments may be a little bit bigger than expected for 2014

The Congressional Budget Office estimates this spring that the United States Treasury would receive about 2 billion dollars as a result of the individual mandate tax (26 U.S.C. § 5000A). That figure was premised, however, on a belief that 7 million people would enroll in the Exchanges.  If only 2 million people get insurance through the Exchange that’s roughly 5 million fewer than anticipated who will not. There thus could be as many as 5 million more people who will have to pay the individual mandate (26 U.S.C. §5000A) and could lead to something like another $500 million in revenue next year.

Before we spend the money of 5 million more Americans who might have to pay extra in tax, however,  we need to we need to subtract off two categories of people.  (1) We should subtract off those who acquire faux-grandfathered policies created by President Obama’s recent turnabout to let people who like their (potentially cruddy) coverage keep it under some circumstances and not have to pay the individual mandate.  (2) We should subtract off the small number of people who were projected to purchase policies on the Exchange but, because of poverty or otherwise, would not have had to pay the mandate tax had they failed to do so.

So, let’s say on balance that 3 million fewer people than projected pay the tax under 26 U.S.C. 5000A. It’s hard to know exactly what sort of tax revenue would be involved, but it is likely in excess of $285 million per year because each such person would have been responsible for at least a $95 per person penalty. (I know, I know, there are lots of complications because the penalty is difficult to enforce and because you only have to pay half for children, but then there are complications the other way in that $95 is a floor and one may have to pay 1% of household income). Why don’t we use round numbers, though, and say that the government might get about $300 million more in tax revenue for 2014 (although they may not get the money until 2015) due to lower-than-projected enrollments in the Exchanges.

4. Before the federal government subsidizes them, insurers in the Exchange will lose billions

4. Before consideration of various subsidies (a/k/a bailouts) of the insurance industry created by the Affordable Care Act, insurers could lose $2 billion as a result of having gambled that the Exchanges would be successful.  Here’s how I get that figure. No one knows for sure but, if the experience under the PCIP plan is any guide, when about 1/3 of the projected number of people apply to a plan that is not medically underwritten, expenses per person can be more than double that originally expected.  Even if we assume that experience under the PCIP is not fully applicable, given an enrollment 1/3 of that projected, it would shock me if covered claims were not at least 125% of that expected. If so, on balance that means that losses per insured could total roughly $1,000. If we multiply $1,000 per insured by 2 million insureds, we get about $2 billion. If the Exchanges lose money at the same rate as the PCIP, insurer losses could be upwards of  $7 billion. Again, I make no pretense of precision here. I am simply trying to get a sense of the order of magnitude.

5. The federal government will subsidize insurers more than expected but insurers will still lose money

The Affordable Care Act creates several methods heralded as protecting insurers writing in the Exchanges from claims that were greater than they expected.  One such method, Risk Corridors under section 1342 of the ACA, could end up helping insurers in the Exchanges significantly. But, if, as discussed here, enrollment in the Exchanges for 2014 is 2 million persons, the cost of helping the insurance industry in this fashion will be another $500 million for 2014. Risk Corridors, which have recently been aptly analogized to synthetic collateralized debt obligations (CDOs), requires the government to reimburse insurers for up to 80% of any losses they suffer on the Exchanges.  It also imposes what amounts to a special tax (again of up to 80%) on profits that insurers may make on the Exchanges. The system was supposed to be budget neutral but, as I and others have observed, will in fact require the federal government to pay money in the event that insurer losses on the Exchange outweigh insurer gains. The basis for my $500 million computation is set forth extensively in a prior blog entry. It will only be more if, as discussed in another prior blog entry, the Obama administration modifies Risk Corridors to indemnify insurers for additional losses they suffer as a result of President Obama’s decision to let those with recently cancelled medically underwritten health insurance policies stay out of the Exchanges.

If claims are, as I have suggested 25% higher as a result of enrollment of 2 million, insurers will lose, after Risk Corridors are taken into account, about 9% on their policies. It would thus not surprise me to see insurers put in for at least a 9 or 10% increase on their policies for 2015 simply as a result of enrollment in the pools being smaller than expected.

The relatively modest 9% figure masks a far more significant problem, however.  It is just a national average. Consider states such as Texas in which only 2,991 out of the 774,662 projected have enrolled thus far.  If, say, Texas ends up enrolling “only” increasing its enrollment by a factor of 16 and gets to 50,000 enrollees, I would not be surprised to see claims be double of what was projected.  Even with Risk Corridors, insurers could still lose about 24% on their policies. A compensating 24% gross premium increase, even if experienced only by that portion of the insurance market paying gross premiums, could well be enough to set off an adverse selection death spiral.

Footnote: For reasons I have addressed in an earlier blog entry, one of those methods, transitional reinsurance under section 1341 of the ACA is best thought of as a premium subsidy that induces insurers to write in the Exchanges. Because the government’s payment obligations are capped, however, the provision is unlikely to help them significantly if the cost per insured ends up being particularly high throughout the nation.

6. The federal government might save $19 billion in premium subsidies

The Congressional Budget Office assumed that premium subsidies would be $26 billion in 2014, representing a payment of about $3,700 per projected enrollee.  If the distribution of policies purchased and the income levels of purchasers are as projected, but only 2 million people apply, that would reduce subsidy payments down to $7.5 billion.  And if the policies sold in 2014 cost a little less than projected, that might further reduce subsidy payments.  I think it would be fair, then, to estimate that low enrollment could save the federal government something like $19 billion in premium subsidies in 2014. This savings coupled with heightened tax revenue under 26 U.S.C. §5000A — could we round it to $20 billion — would be more than enough to cover insurer losses resulting from the pool being smaller and less healthy than projected.

The Bottom Line

I suspect my conclusion will make absolutist ideologues on the left and right equally uncomfortable.  What I am wondering is if the Affordable Care Act might not die in 2015 with a giant imploding bang but rather limp on with a whimper. On balance, what we may well see if only 2 million enroll in Exchanges pursuant to the Affordable Care Act is a system that fails to function in some states and remains fragile and expensive elsewhere. On the one hand, it will be an expensive system because of the enormous overhead incurred in creating a highly regulated industry that provides assistance to a relatively small number of people. On the other hand, precisely because it will be helping far fewer people than projected, it might well cost significantly less  than anticipated. I would expect this departure from what was projected to lead to two sorts of pressures:

(1) There will be a claim from ACA supporters that we can use the savings to increase subsidies or the domain of the subsidies beyond the 400% of Federal Poverty Line cutoff  and thereby reduce the adverse selection problem that will already be manifesting itself.

(2) There will be a claim from ACA detractors that all of this confirms that, apart from ideological considerations, the bill is an expensive turkey and that, if  the only way to save it is to impose more and more regulation and spend more and more money, it ought simply to be repealed.

Complicating factors

Rules

There are many factors that could result in the estimates provided in this entry being quite wrong.  I do not want to fall into the same trap as others who have ventured into this field and claim that there are not very large error bars around all of these numbers.  And I do not believe the system is necessarily linear. It may be that small changes have cascading effects. Here are several reasons my estimates might be wrong.

1. The rules change in 2015. There are at least three significant rule changes in 2015.

a. The tax under 26 U.S.C. 5000A for not having government-approved health insurance increases significantly, going from the greater of $95 per person or 1% of household income to the greater $295 per person or 2% of household income. Insurers may therefore assume that enrollment will be greater in 2015 than in 2014.  Some people will be pushed over the edge by the higher tax rate into purchasing health insurance. If so, insurers may feel less pressure to increase prices because they believe their experience in 2014 will not be repeated in 2015.

b. The employer mandate will presumably not be delayed again by executive order which may have two offsetting events: employers reducing the number of full time employees thereby adding more to the Exchanges or employers maintaining health insurance thereby reducing the potential pool for the Exchanges.

c. As discussed in an earlier blog entry, there will be a decline in transitional reinsurance now provided free to insurers in the Exchange which, in and of itself, will put significant pressure on premiums

Realities

Finally, this is a field where events just frequently overtake predictions.  All of these predictions go out the window, for example:

a. if there is a major security breach in the government computer systems and people’s personal information is disclosed;

b. healthcare.gov continues to seriously malfunction during the critical pre-December 23 sign up period

c. if the yet-to-be-built payment system for insurers does not function and people become dissatisfied as a result;

d. if people find, as some are projecting (here and here), that the set of medical providers available in the Exchange policies is drastically reduced over what they expected; and

e. there is a major sea change in legislative power in Washington.

f. other

 

 

 

 

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