One of the few saving graces is that the health insurers’ scheme to enrich themselves known as Obamacare may be going pear-shaped from the standpoint of their profits.
First we had the mess of the Healthcare.gov website, and recall that fixing the back end was lower priority than improving the much-higher-profile consumer experience. So insurers had to process a lot of completed applications manually, which imposed unexpected costs on them. Second, many of the initial enrollees (and presumably a not-trivial proportion of the later ones) were assumed to have pre-existing conditions, as in have costly ailments that had gotten them denied. While insurers did expect to have that population sign up, they didn’t plan on them being vastly more enthusiastic about Obamacare than other target populations, since it would create an significant adverse skew in the insured population, potentially leading to a death spiral (in general, if an insurance pool does not have enough good risks to compensate for the poor ones, the cost of insurance is so high that the good risks drop out because the insurance is clearly uneconomical for them, leading to further rate increases and more thinning of the better risks).
The Wall Street Journal tells us that Obamacare looks to be falling short of insurers’ fond hopes on a third front, that of the level of participation by the uninsured. Remember, even after Obamacare, many uninsured were expected to remain uninsured, due to the fact that some low and moderate income individuals eligible for subsidies would still find the cost to them too high. Brookings last September summarized the projections: of 60 million uninsured, 17 million would obtain insurance via Medicaid expansion. Of the remaining 43 million, 22 million, or roughly half, were expected to sign up, leaving 20 million, or roughly half, still without coverage.
Now remember, the picture so far is incomplete, since the data in the Wall Street Journal story is only as of the end of December, when consumers have until March 31 to sign up. And these snippets come either from small scale surveys or from a few of the insurers themselves. But they paint a broadly similar picture: the uninsured are participating at considerably lower rates than anticipated.
And it’s not simply the gross numbers, the 2.2 million that have enrolled, but the composition. Various sources indicate that the overwhelming majority of enrollees were previously insured. Either they had employers who used Obamacare as an excuse to drop coverage, or their plan was cancelled for not meeting Obamacare coverage standards, or they dropped their current individual policy and purchased an Obamacare plan instead. While the first two categories could produce more revenues to the insurers, the last type, people who switched from a plan they’d purchased in the individual market to an Obamacare plan, almost certainly isn’t, since they buyer would choose it only if he thought it was a better deal given his circumstances. For instance, non-Obamacare plans permit different pricing for men and women, while Obamacare plans require the same pricing for men and women who fall in the same bucket otherwise (same age, geographic location, smoker/non-smoker status). But younger women actually incur somewhere between 10% and 60% more in healthcare care costs than men, which means they typically pay higher premiums. This group would be likely to give Obamacare a hard look relative to their current plans.
In fairness, there’s a lot turnover in the individual insurance market (as in they might obtain a job with a large employer who provides insurance and thus drop coverage, or have a change in personal circumstances that leads them to upgrade or downgrade their coverage). That means you’d expect a fair number to switch over to Obamacare. But even allowing for this behavior, the proportion of uninsured enrolling is much lower than anticipated. A McKinsey survey found that only 11% of Obamacare enrollees had been uninsured. An agency, Health Markets, said that 35% the coverage it arranged was for the uninsured. A survey by Priority Health found only 25% had not had coverage before.
This gives an idea of how severely enrollment of the uninsured so far is undershooting expectations:
Michigan insurers collectively expected 400,000 of the state’s 1.2 million uninsured people to join private plans this year, Ms. Budden said, citing an internal analysis of insurers’ rate filings. As of the end of December, only 76,000 enrollees had arrived, many of whom were previously covered.
The McKinsey survey also didn’t give great cause to be hopeful. Of the people who’d looked at plans but decided not to buy, 52% found them to be unaffordable. Another 30% had “technical challenges”. It’s possible that many in that cohort will figure out how to surmount those problems and will sign up by the end of March.
Some experts saw that the uninsured might reject Obamacare. A January 13 post on Bob Laszewski’s blog (hat tip Lambert) observed:
But what if most of the uninsured literally don’t buy Obamacare?….
As I have reported on this blog before, many working class and middle class subsidy eligible people will find health insurance premiums on the exchanges, after federal subsidies, at about 10% of their after-tax income. The average standard Silver plan deductible is almost $2,600 and the average Bronze deductible is $4,300 according to Avalere Health.
More than two-thirds of Silver plans sharply reduce the number of hospitals in their provider networks over typical employer plans according to a McKinsey study. That means most of the second lowest cost Silver plans––the plan the subsidy is tied to––will be a narrow network plan.
It therefore becomes a difficult decision deciding whether to buy or not buy a health insurance policy.
The Journal oddly placed the best summary in the middle of the story:
“I don’t know we’re growing the number of people with insurance here, so much as we’re just adding complexity,” said Geoff Bartsh, vice president for policy at Medica Health Plans in Minneapolis.
And since complexity generally means more cost, the insurers may not come out of their little scheme to get the government to drive new customers to them anywhere near as well as they’d hoped.