Wednesday, August 31, 2016

Yes, the ACA marketplace needs to grow. But it also needs to shrink

As major health insurers cut back their participation in the ACA marketplace, observers have drawn the obvious conclusion that the market is too small to be viable. The CBO forecast year after year from 2010 through 2015 that 21-22 million people would be enrolled in marketplace plans in 2016; only 11 million currently are. The risk pool is older and too sicker than it should be; the marketplace needs an influx of younger and probably wealthier (and therefore healthier) enrollees.

All true. But it's probably also true that the marketplace needs to shrink even as it grows.

HHS released a study last week finding that premiums in states that accepted the ACA Medicaid expansion are 7% lower than in states that refused the expansion, when diverse other factors are controlled for. The main reason alleged is that enrollees' incomes are much lower on average in nonexpansion states. In expansion states, eligibility for marketplace subsidies begins at a household income of 138% of the Federal Poverty Level (FPL); below that threshold, people are eligible for Medicaid. In nonexpansion states, subsidy eligibility begins at 100% FPL.

As I noted in early 2015, and as CMS confirms in this report, enrollees in nonexpansion states who "should have been in Medicaid" make up an enormous proportion of total enrollment in those states. Fully 36% of enrollees in nonexpansion states have incomes in the 100-138% FPL range (which CMS broke out for the first time this year).  That is, 2.7 million enrollees in 19 states as of the end of open enrollment were in the 100-138% FPL income band (21% of all marketplace enrollees). A small percentage of them, probably 2-4%, would be ineligible for Medicaid in any case because they are legally present noncitizens subject to Medicaid's federal "five-year bar," or even longer state exclusions. But it's fair to say that over a third of marketplace enrollees in nonexpansion states would be Medicaid-eligible should their state accept the expansion.

Kaiser Family Foundation survey data suggests strongly that the low-income insured are better served by and more satisfied with Medicaid than with marketplace plans. And with regard to the financial health of the private plan marketplace,  HHS cites evidence that marketplace enrollees who should be in Medicaid hurt the risk pool:
Data from the Current Population Survey shows that low-income individuals are more likely to report that they are in fair or poor health than individuals with higher incomes. Close to 20% of individuals with incomes between 100 and 138% FPL report being in fair or poor health  compared to approximately 8% of individuals with incomes above 138% FPL. Combining these rates with the enrollment data above suggests that we would expect the share of enrollees in fair or poor health (compared to good, very good, or excellent health) to be 2 percentage points higher in non-expansion states compared to expansion states due to the difference in the percent of low-income enrollees. In turn, data suggest that those in relatively poorer health are likely to have higher health care expenditures than those in better health, which may lead to higher expected spending per enrollee in expansion versus non-expansion states, consistent with the increase in premiums we find.
In the months since CMS reported the enrollment totals in the 100-138% FPL bracket,  I'm not sure that marketplace watchers have fully absorbed the extent to which early marketplace projections by CBO and others were off. At present there are only about 9 million marketplace enrollees who "should" be enrolled.  According to Kaiser estimates, about 64% of those who should be eligible for marketplace subsidies are enrolled in marketplace plans -- and that includes the near-fifth of enrollees who should be eligible for Medicaid. 

According to Kaiser, about 9.4 million out of 14.8 million subsidy-eligible people without access to other insurance are enrolled. If we accept the current 17% of marketplace enrollees who are uninsured as a norm (with the majority of unsubsidized individual market enrollees buying outside the marketplace), that suggests a current marketplace capacity of about 17.8 million.of whom 11.1 million were enrolled as of March 31.Take out 2.1 million who should be in Medicaid (Charles Gaba's updated estimate, accounting for attrition as of March 31), and we'd have 9 million subsidized enrollees, vs. a capacity somewhere below 15.8 million, since many in the 100-138% FPL range remain unenrolled.

Kaiser also provides an estimate of the percent of all potentially eligible marketplace enrollees who are enrolled thus far, but it defines all potential individual market customers, including all unsubsidized, as potential marketplace enrollees.  Kaiser estimates the entire potential individual market at 27.4 million. Its survey results indicate that slightly more than half of current individual market enrollees, 53%, are subsidized, which in turn suggests a total of about 17.7 million in the individual market -- again, about 64% of capacity. By Kaiser's estimate, 12% are in non-ACA-compliant plans. That means the ACA-compliant individual market is at about 57% capacity. 
[Update, 9/2: I misread Kaiser's last survey results, not recognizing that the 64% in "marketplace plans" includes those who buy those plans off-exchange. What we do know: as of 3/31 there were 9.4 million subsidized marketplace enrollees. Farrah Associates pegs the total individual market at 20 million, of whom perhaps 2 million are in pre-ACA (noncompliant) plans (thanks to Ken Kelly for pointing this out).  Somewhere around half of the total individual market is subsidized, and about two thirds or slightly more of the potential market is probably enrolled.]

If every nonexpansion state expanded Medicaid tomorrow, the potential nongroup market would shrink by perhaps 3 million, and about 2 million current enrollees would (hopefully) leave the market within say six months. That would leave a total individual market enrollment of about 15.7 million out of a potential 24.4 million.

Two takeaways, then, to the extent that Kaiser's current estimates are on target. First, the ACA-compliant private plan risk pool is a bit less than 60%  about two thirds the size that it should be (taking enrollees in noncompliant plans into account). Second, the potential market is smaller at present than CBO forecasts from 2010 through 2015 indicated. A healthy marketplace would have perhaps 15-16 million enrollees, with about 6 million more buying ACA-compliant plans outside the marketplace.

1 comment:

  1. You note correctly that premiums in the states that accepted Medicaid expansion are 7% lower than in the 19 racist and reactionary states that did not accept the Medicaid expansion.

    I wonder if this is really significant. Initially it feels like a negative yelp review of the dining room of the Titanic. The rise in premiums for those who do not get subsidies is so much greater than 7%, kind of so what.