We could be about to see the same clumsy reconciliations of egalitarianism and freedom [that we see in the individual market provisions of the Affordable Care Act] ensnare the nation’s 6 million or so small businesses, the 40 million–plus people they employ, and the millions more spouses and children who depend on those employees. If only because the number of people involved is so much larger, the consequences and the stresses created could be even more serious than those we have seen playing out over the past few months in the individual market. The major points of tension here are (1) the prohibitions in section 1201 of the ACA on experience rating and medical underwriting in policies sold to small employers; (2) the requirement, also in section 1201, that, if a small business purchases group health insurance from a state-regulated insurer, it must provide the same sort of generous protections (including “essential health benefits”) as do individual policies; and (3) the effective tax that section 1421 of the ACA (section 45R of the Internal Revenue Code) places on wage increases and hiring by some small businesses that choose to offer health insurance.
What [various provisions of the ACA mean] is that there are an awful lot of employers who, if they want to provide health insurance to their employees and dependents, will now be able to purchase those policies at prices that do not take into account their abnormally high projected medical expenses.
A large number of these employers are likely to do so; even now 35 percent of employers with 50 or fewer employees provide some form of health insurance. Many small employers with lower-than-average projected health costs will strive to avoid being lumped in with their colleagues or competitors with higher costs. Instead, they will, if financially possible, “self-insure”: The section 1201 requirement of uniform premiums does not apply to arrangements whereby the employer (or union) itself nominally provides the medical benefits but throws off much of the financial risk onto reinsurers and many of the headaches of running a health plan onto “third-party administrators.” This option becomes even more attractive if employers can get away with the now-bandied-about “dumping strategy” of offering to pay their sickest employees enough so that they can purchase platinum health insurance in the individual exchanges and have money left over. Still other small employers may simply decide not to insure at all — reserving perhaps the delicious option of entering the exchange if some crucial employee or his dependents develop expensive medical conditions.
This self-segregation of small employers based on the projected health-care expenses of their employees will pressure small-group health insurers to raise prices. …
Of course, the curious thing about the looming debacle in the small-group market is that its possible contraction might be the one thing that could rescue the individual market from the probable death spiral. Right now, the individual markets are in danger as a result of lower-than-predicted enrollment and disproportionate enrollment of those over age 50. If small employers actually stop offering coverage — either because the costs of ACA-compliant policies prove too high or because of a death spiral in the SHOP exchanges (or both), they may end up just sending people to the individual exchanges. That won’t do much for President Obama’s promise that people could keep their health plans, and it won’t constitute a “silver lining” for people who want to reduce government’s role in health insurance, but it will do what many conservatives have wanted to do for years: undo the ideology that has previously tied the labor and health-insurance markets together.
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.
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 healthcare.gov 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 healthcare.gov, 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.