Friday, April 05, 2019

The ACA as recession insurance

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The ACA private plan marketplace was always and obviously under-subsidized. A healthy young adult earning, say, $31,000 per year is not likely to feel enthusiastic about paying $220 per month for a benchmark silver health plan with a deductible averaging just over $4000 (albeit often with many services not subject to the deductible).  It's true that if this person were insured through her employer, her premium for somewhat better insurance would average $575 per month and consume 22% of her pre-tax compensation. But with the employer contributing 83% of that premium on average, most people don't recognize how much of their compensation is eaten up by premiums.

Costs in excess of what many people consider affordable is a principle reason that enrollment in the exchanges, averaging about 10 million per month, is less than half what the Congressional Budget Office forecast in 2009.  That said, the ACA marketplace has always faced other headwinds. One is the well-documented one of Republican sabotage (through Congress, from 2010 forward, and via Trump's HHS as well since 2017).  A second is unbroken job growth since mid-year 2009, reducing the number of people who need to look to the individual market for health insurance. From March 2010 through January 2019, the economy added just shy of 21 million jobs.

Conversely, the marketplace -- along with the ACA Medicaid expansion -- stands in reserve as a shock absorber when the next recession or financial crisis hits.

In the Great Recession of 2008-9, the U.S. economy shed almost 9 million jobs. The uninsured population grew by 5 million from 2008 to 2010. According to Kaiser Family Foundation estimates, as of 2017, 8.2 million uninsured Americans were eligible for subsidies in the ACA marketplace (about equal to the number of subsidized enrollees); 6.8 million uninsured were eligible for Medicaid (while Medicaid enrollment has increased by about 16 million since ACA enactment); and 1.9 million uninsured earned too much to qualify for either type of assistance (a number that has probably grown as off-exchange enrollment has dropped by over 2 million since 2017).

A recession would increase the number of people eligible for both marketplace subsidies and Medicaid. It would also drop some marketplace enrollees into the Medicaid pool.

The increase in marketplace enrollment might depend in part on what time of year the job losses started or accelerated, and how long the job losses last. Marketplace subsidy eligibility depends on annual income. If you are well-paid and lose your job in, say, September, your YTD earnings may disqualify you for subsidies -- though if earnings sink below about $1,400/month for an individual (e.g., with unemployment insurance), Medicaid enrollment may be possible in states that have accepted the ACA Medicaid expansion. If unemployment lingers, the person laid off in September may be marketplace subsidy-eligible the following January.

Other moving parts: According to Kaiser Family Foundation estimates, the percentage of the U.S. population insured through an employer dropped from 60.7% in 2007, the year prior to recession, to a nadir of 55.6% in 2011, and climbed back up to 58.4% in 2017.  Americans are aging into Medicare at an accelerating rate, with enrollment growing by 1.5 million  to 2 million per year over the last few years. And of course, by the time the next recession or major financial crisis hits, the ACA may be transformed -- or repealed.

As of now, though, the ACA's core programs, having weathered multiple existential threats, stand ready to alleviate a substantial amount of misery when the economic worm turns.

Update, 8/29: Georgetown's Edwin Park on Medicaid in recessions:
Pre-Medicaid expansion, rule of thumb was about 1m Medicaid enrollment increase for every 1pt increase in unemployment rate. Likely significantly higher with many more parents and other adults potentially eligible in expansion states.

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