Tuesday, November 10, 2015

The Counter-Upshot: Obamacare is quite as egalitarian as it appears

Tyler Cowen draws a rather odd conclusion from the spike this year in premiums for health plans sold in the nongroup market: The ACA is not as egalitarian as it appears.

Cowen legitimately spotlights the weakness of the ACA value proposition for uninsured people with incomes above 250% of the Federal Poverty Level (FPL) and so for a large group of the remaining uninsured. But his discussion of its "egalitarian" impact is limited by his leaving the Medicaid expansion out of the equation (if not entirely out of the discussion).

Cowen bases his case that "by some measures, the Affordable Care Act has had only a limited impact on economic inequality" mainly on a recent study* by Wharton School researchers led by health economist Mark Pauly.* Pauly et al found that slightly less than half of the still-uninsured who are eligible to buy health plans on the ACA exchanges would not experience "welfare improvements" if they buy health plans. Cowen summarizes:

One implication is that the preferences of many people subject to the insurance mandate are likely to become more negative in the months ahead. For those without subsidies, federal officials estimate, the cost of insurance policies is likely to increase by an average of another 7.5 percent**; even more in states like Oklahoma and Mississippi. The individuals who are likely losers from the mandate have incomes 250 percent or more above the federal poverty level ($11,770 for a single person, more for larger families), the paper said. They are by no means the poorest Americans, but many of them are not wealthy, either. So the Affordable Care Act may not be as egalitarian as it might look initially, once we take this perspective into account.
According to the Pauly study, 48% of the still-uninsured who are eligible to buy coverage in the ACA marketplace have incomes over 250% FPL and so are likely to suffer welfare losses if they buy coverage on the exchange (or presumably in the off-exchange nongroup market). Let's leave for another day the question of how the study defines welfare losses; it seems to me that it may undervalue protection against the risk of catastrophic expense (though it does provide a complex risk premium calculation, which measures how much people are willing to pay to reduce perceived risk). But it's true that what's on offer in the ACA private plan marketplace is far less attractive for buyers over 250% FPL -- or, to be honest, for buyers over 200% FPL, the cutoff for strong Cost Sharing Reduction (CSR) subsidies. (CSR weakens to a near-negligible level for those in the 200-250% FPL range and is not offered to those over 250% FPL.)

Cowen, though, is vague about how the numbers of "not wealthy" potential losers stack up against the ACA's likely beneficiaries (as demarcated by Pauly). In fact, a majority of the uninsured are in households with incomes under 200% FPL -- and a substantial majority are below 250% FPL, the cutoff for net ACA gain that Cowen borrows from Pauly et al.

Here is how the uninsured were distributed in 2013 and 2014, according to The Census' Current Population Survey 2015 Annual Social and Economic Supplement released in September:

Reduction in Uninsured Population by Income Group, 2013-2014

Pop 2013
Pop 2014
Uninsured 2013
Uninsured 2014
Drop in uninsured 2013-14
< 100% FPL
 46.27 mil
 46.66 mil
10.87 mil
 9.00 mil
1.87 mil
 58.77 mil
 58.69 mil
11.99 mil
 8.86 mil
3.13 mil
 49.58 mil
 51.45 mil
 7.83 mil
 6.02 mil
1.81 mil
 40.82 mil
 40.82 mil
 4.20 mil
 3.43 mil
  .77 mil
Over 400%
117.67 m
118,19 m
 6.59 mil
 5.67 mil
  .92 mil
313.11 m
315.81 m
41.48 mil
32.98 mil 
8.50 mil

Under 200%
105.04 m
105.35 m
22.86 mil (55%)
17.86 mil (54%)
5.00 mil
Under 300%
154.62 m
156.80 m
30.69 mil (74%)
23.88mil (72%) 
6.81 mil

These figures probably somewhat understate the percentage of the uninsured below the 250% FPL threshold as defined by the ACA marketplace. While the CPS counts everyone living under one roof as a household, the marketplace bases FPL on who is included in a household's  tax filing. The strong drop in the uninsured rate for those at 200-299% FPL in the CPS's figures suggests that participants in that income band would show a lower FPL in the marketplace application. Probably about two thirds of those who have gained insurance through the ACA -- maybe a bit more, possibly a bit less -- have incomes under 250% FPL.

The just-published early release of National Health Insurance Survey (NHIS) data for the first half of 2015 may also point to a somewhat higher concentration of uninsured at low income levels than the CPS. According to NHIS, 26.6% of Americans with incomes under 100% FPL were uninsured at the time of interview, compared to 39.3% in 2013.  Among the "near-poor" with incomes ranging from 100-200% FPL, 23.9% were uninsured, down from 38.5% in 2013. Among those with incomes over 200% FPL, 7.5% were uninsured at early 2015, down from 11.4% in 2013.  Among those for whom income was unknown, 12.6% were uninsured in 2015, down from 24.3% in 2013.

Plug those percentages into the CPS estimates of uninsured in each category in 2014, and it appears that about 63% of the uninsured might have incomes under 200% FPL -- though the income unknown category is a wild card that may suggest a somewhat lower percentage.***

None of this is to suggest that the ACA is not flawed, or that the jury is not still out on whether nongroup market risk pools revamped under the law prove sustainable, or that the law offers a great deal to the uninsured with incomes over 250% FPL (though it has improved the market for many above that threshold, including older buyers with incomes up to 400% FPL, for whom subsidies cover a large percentage of the higher base premiums charged to older adults, as well as for a very substantial percentage who have preexisting conditions as they were defined in the pre-ACA market).

But we know that about 13 million people have been enrolled in Medicaid since 2013 as a result of the ACA expansion. About 7.3 million marketplace enrollees  have incomes under 250% FPL. Unknown numbers in every income group have gained employer-sponsored insurance.

The ACA has "made the U.S. more egalitarian" by distributing very significant benefits to over 20 million people with incomes under 200% FPL, in large part at the expense (via new taxes to fund it) of those with incomes over $250,000 per year.

The law has also made the U.S. more egalitarian by guaranteeing access to insurance to those with preexisting conditions. That so-called "guaranteed issue" is the main driver of the increase in the unsubsidized premiums triggered by the ACA (according to Pauly, among others).  It's also the main reason for the individual mandate The mandate exists not primarily to "help people even if they may not want to bear the costs," as Cowen suggests, but to spread the cost of covering those who were previously barred from coverage by their need for care.

Postscript, 11/10: I was just thinking that the purposes of the mandate advanced by Cowen and me -- pushing people to get covered and enabling guaranteed issue -- are essentially fused, as are the mandate and guaranteed issue. You might say that the ACA's most popular feature -- guaranteed issue -- is also its least popular feature, in that its (submerged) cost drives up the unsubsidized price of insurance in a big way.

Update, 11/10: I've corrected a couple of totals in the CPS chart, not material to the percentage of uninsured in each income group.

Update, 2/10/16: One context for the high concentration of uninsurance among those under 200% FPL that I was not aware of is a disproportionate loss of employer-sponsored insurance among low-wage workers since 2000.  Nicole Huberfeld and Jessica Roberts provide that context in a Health Affairs article:
In 1980, approximately 71.4 percent of non-elderly Americans had health insurance coverage as an employment benefit; by 2007, just 61.6 percent had this benefit, and by 2012, just 54.9 percent of Americans had this employment benefit. The others were either covered by public programs such as Medicare or Medicaid, or relied on charity care, or racked up medical debt often leading to personal bankruptcy. (The small number that could afford individual insurance remained at about 6 percent during that time period.)

The decreases in coverage were measurably greater for middle- to low-income workers; for example, those earning more than 400 percent of the federal poverty level (FPL) experienced a 2.8 percent drop in employer-sponsored coverage from 2000 to 2011, but people earning less than 200 percent of the FPL experienced a 10.1 percent drop in employer-sponsored coverage.

The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsured. Mark Pauly, Adam Leive, Scott Harrington. NBER Working Paper Series, September 2015

** CMS pegs 7.5% as the average increase of the benchmark silver plan across the 37 states using healthcare.gov, the federal exchange.

*** Regarding those for whom the NHIS could not produce an income estimate: The fact that their uninsured rate has been slashed in half since 2013 might suggest a low average income. On the other hand, the fact that a very high percentage of this group has private insurance 69.3% (vs. 45.9% for the near-poor and 80.8% for the not-poor) suggests perhaps a mid-range average income.


  1. As you point out, there is a sizable block of people who have no employer coverage, and face higher premiums due to guaranteed issue, and get no subsidies due to their middle class incomes. I talk to these people at my insurance agency every day.
    The ACA left them worse off. This was partly due to the need to cap subsidies to make the ACA law 'revenue neutral,' and partly due to the fact that Gruber and others in the elite have little sympathy for this largely Republican cohort
    The grandfathered plans sort of put off the pain for a few years, and these plans were really cheap for those healthy enough to obtain them years ago. But as these plan disappear, due to time or insurers leaving the market, this group faces huge premium increases. And some of them are deciding to remain uninsured.
    But Republicans are too stubborn to accept expanding the subsidies, and Democrats are too timid to even suggest it.

    1. So the issue is: will the "largely Republican cohort" of middle income citizens continue to tacitly or explicitly go along with bloviation about the atrocity of Obamacare, or will they push their representatives to expand subsidies?