It's that time again, America: Open enrollment for the Affordable Care Act, better known as Obamacare, is in full swing through the end of January.
According to the latest update from the Centers for Medicare and Medicaid Services, there were 10.4 million paying customers at the end of June, more or less putting the program on track to have around 10 million paying customers by the end of 2016. Based on the latest analysis by the Centers for Disease Control and Prevention, just 8.9% of adults are currently uninsured in the United States, which is a substantial drop from the roughly 16% who were uninsured prior to Obamacare's implementation.
Heading into 2017, the goal is simple: lower the uninsured rate even more. If the first day of open enrollment is any indication, Obamacare looks to be off to a good start.
Day 1 of Open Enrollment → 150K apps submitted thru @HealthCareGov. More than day 1 last year. Today, tens of thousands are submitting apps.— HHS Media (@HHSMedia) November 2, 2016
Obamacare applications soar on day one
As tweeted by HHS Media, the Department of Health and Human Services media account, 150,000 applications were submitted on the first day of open enrollment. After some digging by ACASignups.net, it appears more than 100,000 applications were submitted on the first day of open enrollment on Nov. 15, 2014 (for calendar year 2015), and 250,000 applications were submitted on the first two days (Nov. 1, 2015 and Nov.2, 2015) of last year's open enrollment period. If this year's pattern were to hold through the first two days, then roughly 50,000 extra applications would be submitted compared to last year.
It's important to note that applications don't equate to qualified health plan enrollments. Applicants could simply be submitting applications to see whether or not they qualify for the Advanced Premium Tax Credit (APTC) or cost-sharing reductions (CSRs). The APTC is the subsidy responsible for lowering what patients pay for their monthly premium, while cost-sharing reductions can lower what you'll pay in copays, deductibles, and coinsurance when you head to the doctor's office. The latest CMS report referenced above notes that 84% of the 10.4 million paying members are receiving the APTC, with 56% qualifying for CSRs.
Application filings could also be a means for consumers to browse around their respective marketplaces to see what plans are available. Nonetheless, it's an encouraging early sign.
However, a strong early showing in applications isn't reason yet to break out the champagne. Obamacare is facing a handful of challenges this year that could lead to a major deceleration, or even decline, in year-over-year enrollment.
Could Obamacare's enrollment decline in 2017?
The biggest challenge facing Obamacare enrollees in 2017 is rapidly rising premium inflation.
In 2017, consumers across the country are facing an average individual market premium increase of 25% for benchmark silver plans (the second-lowest cost silver plan in each state), as reported by USA Today using data gathered by ACASignups.net. Oklahoma, Minnesota, Tennessee, and Arizona are expecting weighted premiums to rise by more than 50% during this enrollment period, while residents in Montana, West Virginia, and Illinois are dealing with premium inflation of between 40% and 49%. While consumers receiving the APTC will be mostly shielded from these massive hikes, middle-class consumers earning more than 400% of the federal poverty level ($47,520) could struggle to absorb inflation of this magnitude.
At the heart of this year's rapid premium inflation are two stories. First, we have the failure of the risk corridor to provide a financial foundation for insurers. The risk corridor was a risk-pooling fund that took money from overly profitable insurers and disbursed it to insurers losing excessive amounts of money because they priced their premiums too low. However, just an eighth of the funds requested by money-losing insurers was disbursed, causing three-quarters of Obamacare-approved healthcare cooperatives (low-cost healthcare operators) to close their doors. This effectively eliminated a number of low-cost health insurance options for Americans.
The other big story is that three of the nation's five largest national insurers are pulling out of Obamacare marketplaces in 2017. UnitedHealth Group (NYSE: UNH), the nation's largest insurer, is exiting 34 state exchanges and will remain in only three in the upcoming year. Similarly, after the Justice Department blocked their merger attempt, Aetna (NYSE: AET) and Humana (NYSE: HUM) announced their intentions to reduce their county-based coverage by nearly 70% and 90%, respectively, on a year-over-year basis. All three insurers are cutting back on coverage after experiencing steep losses on ACA plans.
Given the declining competition, insurers are expected to have more pricing power in 2017.
A sneaky way insurers are pushing more costs onto consumers
But it's not just premiums that could scare away consumers in 2017. Insurers have another trick up their sleeves to help reduce what they're spending on medical care.
Based on an analysis conducted by HealthPocket, Obamacare deductibles are heading considerably higher in 2017. Deductibles are the amount of out-of-pocket payments you're responsible for before your insurance coverage kicks in. HealthPocket's study forecasts a 6% increase in average bronze plan deductibles to nearly $6,100 and a 15% increase in silver plan deductibles to more than $3,500. The big question here is whether some consumers will be unable to afford visits to the doctor, even if they can afford to pay their healthcare premiums. The answer may be yes for some lower- and middle-income individuals and families.
In fact, the average unsubsidized 50-year old making $48,000 a year -- slightly more than 400% of the federal poverty level -- would have to spend 14% of their monthly income just to purchase an average silver plan in 2017. This percentage doesn't even account for the average silver plan deductible of $3,572 if they were to need a lot of medical care, which could push their aggregate annual medical costs to more than 20% of their earned income.
Young adult enrollment may remain weak
Adding fuel to the skeptics' fire is the idea that young adult enrollment could remain below par. Young adults are often healthier than older adults, meaning their premium payments are needed by insurers to help offset the costs of enrolling older and/or sicker adults.
Even though we've witnessed a progression in young adult enrollment in the previous three ACA enrollment periods, total young adult enrollment is still below expectations. As I've previously posited, this likely has to do with the fairly large gap between the Shared Responsibility Payment (SRP) and the annual cost of a bronze-tier plan.
The SRP is the penalty imposed come tax time for consumers who didn't purchase health insurance. In 2014, the SRP was the greater of $95 or 1% of your modified adjusted gross income (MAGI). However, for 2016 it'll be the greater of $695 or 2.5% of MAGI. Even with this substantial increase, the penalty is only expected to average $969 in 2016, according to the Kaiser Family Foundation.
By comparison, HealthPocket notes that the average bronze premium in 2017 for a 30-year old is $311.17, a 21% increase from 2016. Extrapolate that out over the course of a year, and the average 30-year-old bronze plan enrollee will pay more than $3,700 just in premiums. Healthier young adults who simply don't head to the doctor much are likely to choose the penalty of $969 over a $3,700-plus cost.
Until the SRP more accurately reflects the annual cost of a bronze tier plan, young adult enrollment is likely to remain relatively low.
While it's far too early to determine how well or poorly Obamacare will fare in 2017, the major pricing challenges consumers are dealing with suggest that a decline in open enrollment isn't out of the question.