When the Affordable Care Act passed Congress in 2010, analysts from the Congressional Budget Office, the federal agency overseeing Medicare and Medicaid, and private-sector allies released estimates for how many Americans would enroll in ACA-exchange plans over the ensuing years. For 2016, the average projected enrollment was about 20 million.
A few weeks ago, the Obama administration released its revised projection for 2016. The figure is 10 million, roughly half the original estimate. Why is there such a yawning gap between theory and reality here? The experience of Blue Cross Blue Shield of North Carolina is a good place to start to answer this question.
Blue Cross is by far the dominant provider of ACA-compliant plans (as well as of health plans in general for individuals and small groups). Large insurers like the Blues were supporters of Obamacare, albeit cautious ones. They knew the initial burst of enrollees would be the most highly motivated consumers — people with preexisting, expensive-to-treat conditions who were outside the employer-based market. But the legislation contained several provisions that insurers believed would offset the financial hit from this first wave of enrollees, including government subsidies and reinsurance.
Moreover, as Blue Cross Blue Shield of North Carolina executive Patrick Getzen explained, they thought the risk profile on the exchanges would change over time. “The industry generally had two expectations of ACA customers: first, that we would see healthier customers enroll in the second year, and second, that heath care costs would level out as pent-up demand for services minimized,” Getzen told Triangle Business Journal. “Based on our data, neither expectation is proving true. Our claims and expenses are higher than our premiums and we need to take steps now to protect the sustainability of plans for our customer over the long-term.”
The company has asked the North Carolina Department of Insurance to approve a 35 percent average increase in premiums for its exchange plans for 2016. The underlying numbers are stark. In 2014, Blue Cross spent $1.65 billion reimbursing expenses for its exchange customers. But it took in just $1.18 billion in premiums, plus $343 million in federal subsidy. That’s a $123 million loss. All indications are that the company is running a substantial deficit in 2015, as well.
North Carolina’s experience is hardly unique. Health insurers across the country are also experiencing massive losses despite healthy inflows of federal cash. The scope of the problem varies by state. But the problem is essentially national. It stems from the very architecture of the ACA, which offers too heavy a subsidy for some customers and then attempts to spread that cost over too narrow a set of other ones.
The exchanges haven’t attracted enough low-expense customers to make the math work. Millions of Americans would rather remain uninsured than enter the exchanges and pay inflated prices for plans that don’t really shield them from high out-of-pocket expenses. According to a new National Bureau of Economic Research paper by health policy analysts Mark Pauly, Adam Leive, and Scott Harrington, this decision is far from irrational. The researchers carefully examined the costs and benefits of non-poor households purchasing ACA plans. Ever after factoring in federal subsidies for buying plans and tax penalties for not buying them, they found that about half of previously uninsured Americans lose money by entering the exchanges and enrolling in health plans.
Is it a coincidence the exchange plans seem to be attracting about half the original estimate? Not according to Pauly and his colleagues. “The percentage of the sample with estimated welfare increases is close to matching observed take-up rates by the previously uninsured in the exchanges,” they observe.
Obamacare remains an unnecessary wrong turn for health reform. Policymakers ought to have capped the tax exclusion for employer-sponsored health plans, offered refundable tax credits to purchase private plans within truly competitive markets, and helped patients with preexisting conditions by using general revenues to fund high-risk pools.
That’s where a new president and Congress ought to go. It’s not too late, not just yet.
John Locke Foundation chairman John Hood is the author of Catalyst: Jim Martin and the Rise of North Carolina Republicans.