Monday, October 26, 2015

More on Charles Gaba's "Two glaring errors in the WSJ anti-Obamacare editorial"

Charles Gaba has caught a couple of glaring errors in a Wall Street Journal editorial claiming that the ACA private plan marketplace is on the road to failure. The most important error misrepresents the state of the current and potential nongroup market -- that is, the pool of people who buy or could buy their health insurance on their own, with or without ACA subsidies.

Gaba captures the main point: that contra WSJ assertions, most of those who buy their insurance off-exchange are not subsidy eligible, and are mingled in the same risk pools as those who buy on-exchange. I'd like to further clarify, though, how much progress those markets have made toward full capacity, and to what extent those who are eligible for subsidies have so far enrolled.

Here's the WSJ editorial board's "state of the market" overview:

Recruitment for 2015 is roughly 70% of the original projection, but ObamaCare will be running at less than half its goal in 2016. HHS believes some 19 million Americans earn too much for Medicaid but qualify for ObamaCare subsidies and haven’t signed up. Some 8.5 million of that 19 million purchase off-exchange private coverage with their own money, while the other 10.5 million are still uninsured. In other words, for every person who’s allowed to join and has, two people haven’t.
And here's Gaba's correction:
The Wall Street Journal has made a fundamental error here. They don't seem to understand that most of the 8.5 million people enrolled in off-exchange private policies are part of the same risk pool as the exchange-based enrollees. Setting aside a couple million "transitional" and "grandfathered" policy enrollees, the other 5-6 million (guestimate) are treated just like exchange-based enrollees for purposes of risk pools. The only reason most of those folks haven't signed up via the exchanges is because they make more than 400% FPL and therefore don't qualify for federal tax credits. 
I would add: not only are most of those who buy off-exchange not subsidy-eligible, but so are many of the 10.5 million uninsured whom HHS estimates will be eligible to buy plans on-exchange. According to HHS, a bit shy of 80% of them  are "potentially" subsidy eligible -- meaning that their incomes are under 400% of the Federal Poverty Level (FPL), the cutoff for eligibility But not all of those under 400% FPL actually are subsidy-eligible -- for many young buyers especially, subsidies fade out below 300% FPL.* And HHS estimates that almost half of the potentially eligible uninsured are in the 18-34 age range. All told, the pool of potentially subsidy-eligible uninsureds is probably about 7.5 million.

At present, about 8.3 million exchange enrollees are subsidized. If HHS's estimate of the potential market is accurate, a bit more than half of those who are eligible for exchange subsidies are currently enrolled -- not the one third that the Wall Street Journal editorialists suggest (by conflating exchange-eligible with subsidy-eligible).

More to the point, as Charles notes, most of those who buy off-exchange are combined in the same risk pools as exchange customers, since insurers who sell ACA-compliant plans on- and off-exchange in the same market have to combine those customers in one risk pool. And to the extent that the estimates of 8.5 million current off-exchange customers and 10.5 million potential exchange customers are on target**, at present the nongroup market is at about 63% capacity. That is, about 18.4 million are enrolled in nongroup market plans on- and off-exchange out of a potential 28.9 million. The WSJ's claim that only a third of potential exchange customers have bought on-exchange is essentially meaningless.

Gaba further notes that the WSJ editorialists confuse HHS's projection of enrollment at the end of 2015 (probably lowballed at 9.1 million) with current enrollment (9.9 million as of June 30, probably a shade below as of now).  Gaba, the master estimator of ACA monthly attrition, believes current enrollment is very close to 9.9 million, perhaps slightly over. In my estimate of the total nongroup market above, I pegged nongroup enrollment at 9.8 million, as prior experience suggests modest attrition in the summer and fall prior to open season.

As Gaba notes, the WSJ editorial points out many real problems and danger points in ACA enrollment and marketplace offerings to date. Their zeal to forecast the marketplace's imminent failure eclipses the editorialists' analytical capacity, however. Motivated reasoning is evident in an omission as well as in the errors noted above: while citing HHS to highlight that most of the still-uninsured who are eligible for exchange plans say that they can't afford coverage,they neglect to mention HHS's corollary: that the vast majority of subsidy-eligible buyers who say they can't afford coverage are not aware of the subsidies. For many, even subsidized premiums really are hard to afford (and the subsidies really are too skimpy); for many more, ignorance, not affordability, is the problem. We don't yet know how many would find coverage affordable if they knew what was on offer for them.  But neither ambiguity nor partial success fit into the Wall Street Journal editorial board's world view.

* As I recently noted, those under 400% FPL qualify only if the unsubsidized cost of the benchmark second-cheapest silver plan exceeds 9.5% of their income. Since unsubsidized plans are much cheaper for young buyers than for older ones (three times cheaper for a 21 year-old than for a 64 year-old), subsidies tend to fade out at under 300% FPL for buyers under 30.

** One alternate estimate of the off-exchange market: According to Kaiser's spring survey of plan buyers in the individual market, as of mid-February, 40% of plan holders in the individual market had bought their plans off-exchange. That would come to about 7.8 million at that point. Since then, marketplace enrollment has declined by about 15%; we don't know whether there was similar attrition off-exchange. I would guess not, as those who signed on to pay full freight are probably likelier to know what they can afford.

Related: In ACA marketplace, the low-hanging fruit is more than half picked.

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