Obamacare: What We Didn’t See Coming
The Affordable Care Act was not only the most important expansion in health insurance coverage of the past 50 years; it was also the one that everyone weighed in on. Dozens of experts — and non-experts — made their own finely calibrated projections about just what the ACA had in store for health insurance coverage, health insurance costs and the overall U.S. economy. And while politicians have rendered their verdicts, those of us in the research world know we have to wait a little longer for definitive assessments, given that much of the ACA didn’t go into effect until the start of start of 2014.
Still, we do have 2.5 years of experience with the coverage expansion — and that’s enough to tell us something. More people are in Medicaid than anticipated; fewer bought health plans through the exchanges. The reasons why this has happened — including the stability of pre-ACA employer coverage and unwavering GOP opposition — include some surprises, even for those of us who have tracked the law closely and rooted for its success.
Go back a few years and you’ll see that expectations for the ACA ran from the excessively optimistic (lowering health care spending levels while simultaneously covering millions more people) to the outrageously pessimistic (massive losses of jobs and job-related insurance — neither of which happened).
What did happen? The law has more or less hit its target for covering Americans. Almost 20 million people had coverage in 2015 — close to what the nonpartisan Congressional Budget Office had forecast in early 2013. But it didn’t quite happen in the ways the CBO and many of us other analysts expected. Surprises aren’t necessarily failures — but looking at where they popped up, and why, gives us a map to figuring out what shape the law is likely to take as it evolves.
Medicaid: Out of the Woodwork
The rise in the Medicaid rolls has been much higher than expected. In May, 2013, CBO projected that Medicaid would grow by 12 million by 2015 and stay more or less at that level in 2016. In fact, Medicaid had grown by about 15 million by the beginning of 2016, according to the Centers for Medicare and Medicaid Services. This growth occurred even though two-fifths of states are still unwilling to take advantage of the ACA’s Medicaid expansion and the massive federal funding that comes with it.
One big reason for Medicaid’s surge is the so-called “woodwork” effect: increased enrollment among people who were eligible under the old system but who didn’t “come out of the woodwork” to sign up until the concentrated effort to get people enrolled under the new law. This woodwork effect has occurred in both expansion and conservative non-expansion states. And it likely arises from factors like the individual mandate to get covered, streamlined enrollment which makes it easier to sign up and general attention to health insurance coverage under the law.
The states get less federal matching money for the pre-ACA Medicaid populations — including the “woodwork” newcomers. For the expansion population, the federal government picks up the full cost through this year, and then will phase back to paying 90 percent by 2020. So, states that saw a surge of “woodwork” signups do have higher costs, but remember – these are needy, low-income individuals (including children) who had already been declared worthy of public insurance coverage under Democratic and Republican administrations alike.
They hadn’t been taking advantage of their entitlement, perhaps because they lacked information, had trouble with the application process, or felt stigma about receiving public insurance. I hadn’t expected such a big woodwork effect — but in my view, bringing these long-eligible but long-uncovered people into the insurance system where they can get the care that they need is a major accomplishment of the health law.
Exchanges, Employers and Premiums
The second point missed by the CBO — again, surprising many of us — is how slowly the insurance exchanges would grow. CBO projected more than 20 million people would be enrolled in these new online markets by this year. In fact, only about half that many are covered.
One big reason is yet another ACA surprise, and a fortunate one: The employer insurance market is much more stable than expected. A lot of the controversy around the ACA was the expectation on the right that it would erode existing employer insurance. CBO’s estimates were smaller than some conservatives but even it estimated a reduction in employer coverage of about 4 percent, or about 7 million people. CBO also assumed, as far as I can tell, that most of the people leaving employer insurance would turn to the exchanges instead.
That’s not what happened. In fact, employer coverage has not eroded at all, according to most recent estimates. My recent work with Harvard School of Public Health researchers Molly Frean and Benjamin Sommers confirmed that neither eligibility for large tax credits in the exchange, nor eligibility for Medicaid appears to have led individuals to abandon their preferred workplace insurance. Nor have employers by and large scrapped covering their workers.
Still, that good news about the stability of job-based coverage can’t fully explain why exchange enrollment fell short. Our research suggests another potential explanation: some states’ refusal to promote enrollment in the exchanges or do effective outreach. (Some states went even further and tried to block enrollment assisters.) We’ve found that enrollment rates in states that were more supportive of the health law and set up their own exchanges were roughly twice as high as those states that relied on the federally run exchanges. There are exceptions, though. For instance, even though Florida has a Republican governor who vehemently opposed the law, on-the-ground advocates have led a robust and successful enrollment effort there.
Insurance premiums on the exchanges have also surprised me — but not in the way that most readers would think. Most press coverage recently has focused on the high premium increases in exchange plans, and the exits of some insurers losing money on the exchanges, notably United Healthcare. But what those articles tend to ignore is that exchange premiums in 2014 came in much lower than expectations — about 15 percent below what CBO projected. So even with recent increases, premiums are probably still lower than what would have been expected before the exchanges began. That gets overlooked.
So why were premiums so low? Why are they rising now? And why are some insurers leaving the exchanges? I can give you four possible reasons.
First, insurers were willing to risk trying low premiums at the outset because the government had set up a “risk corridor” program that was supposed to partially reimburse them for losses beyond some established minimum level. However, the Republican-led Congress did not fund these risk corridor payments (even though Congress happily endorsed the exact same program in the Medicare prescription drug program under President George W. Bush). That led to billions in unexpected losses for insurers.
Second, insurers may have initially priced low as part of a typical “invest, then harvest” strategy. In other words, they lured consumers with low prices up front and figured they’d make up the money as inertia kept consumers from switching to another plan when premiums go up in later years. This strategy banks on people staying in their plans year to year. The problem is exchange customers aren’t so “sticky” (the word health plans often use to describe customers who stay with them longer than a year). The exchanges have seen unprecedented rates of shopping around for insurance, which means the health plans can’t just make up for lower premiums later on.
Third, special enrollment periods outside the normal enrollment season allowed some individuals to wait until they are sick to enroll — exactly what a clearly delineated sign-up season was supposed to prevent.
Finally, insurers may simply have erred in assessing the underlying health of exchange enrollees. That led to initial underpricing and then the more recent price increases to account for the cost of caring for a population that was older and sicker than expected.
Where do we go from here?
What do all these surprises imply for the ACA going forward? I see four key lessons.
First, the case for the rest of the states to adopt the Medicaid expansion is stronger than ever. Even when states don’t adopt those expansions, they are seeing large Medicaid enrollment increases — partly on their own dime. It makes no sense for states to increase coverage for the populations that cost them the most, while leaving uncovered the new expansion populations that are much more heavily subsidized by the federal government.
Second, reports of the demise of employer-sponsored insurance are greatly exaggerated. Employer-sponsored insurance was slowly declining before the ACA, and I expect that it will continue to slowly decline. But there is no evidence that the ACA is leading to its collapse. We see no large shift in the preferred mode of health care coverage for employees.
Third, the sizeable rise in exchange premiums over the past year, and even a rapid rise in the coming year, does not imply a long run unsustainable pricing pattern for exchanges, despite what critics of the health law may contend. The recent rise simply reflects a “catching up” after insurers initially set prices too low. After a few years of large premium increases, premium growth rates should settle back down to keep pace with the growth in health care spending. This rate, of course, is still high – historically around 7 percent, although much slower in recent years. So exchange premiums will keep rising – but less rapidly than they are now. In other words, contrary to what you may have heard from some quarters, the law’s not about to implode.
Fourth, the exchanges will probably end up smaller than expected – but still plenty large enough to continue. The fact is that exchanges in every state are well above the minimum scale required to function effectively. And the fear of “death spirals” from rapidly rising premiums is greatly exaggerated when the vast majority of exchange enrollees are subsidized, meaning they don’t pay those higher premiums. This provides a stable base of enrollees, even as premiums rise.
Finally, for many of us, what has probably been the most unexpected developments since 2014 is the ongoing opposition to the ACA on both the right and the left, and the vitriolic tone that it continues to take in both public debates and personal attacks. The ACA is now the established law of the land, and given its enormous and ongoing impact on the U.S. health care system, it is not going away. Yet the discussion has not followed the natural evolution to a mature consideration of pros, cons and possible reforms. Rather, it continues to be dominated by ideological position pieces that either propagate misinformation or hold the law to an impossible standard of idealized health care.
Any objective analysis of the ACA will find that it vastly improved the lives of millions of Americans who could not previously rely on the security of employer or government-provided insurance — while leaving the vast majority of Americans able to still rely on the insurance arrangements that they enjoy. And that should be no surprise.