Nov. 1 marked the beginning of the Affordable Care Act's third open enrollment period. The ACA, which you likely know better as Obamacare, is expected to have 10 million paying customers by the end of 2016, according to the Congressional Budget Office.
Although week-to-week fluctuations in enrollment are expected, examining the initial interest in enrollment from the public, especially from the first week, can potentially help establish whether Obamacare is getting off on the right or wrong foot this year. This past week, the Department of Health and Human Services released enrollment data for HealthCare.gov's first week. Keep in mind this data includes more than three dozen states, but it does not include state-run marketplaces such as California, New York, and Washington, which are all sizable contributors.
Obamacare's first week of open enrollment delivers a big surprise
For the first week of open enrollment on HealthCare.gov, more than 540,000 consumers selected a plan, including approximately 358,000 reenrollees. Additionally, slightly more than 1.15 million consumers submitted applications through HealthCare.gov, presumably to see if they would qualify for an Advanced Premium Tax Credit and/or cost-sharing reductions.
On the surface, 540,000 sign-ups doesn't sound like a lot. For a program that only gives consumers 13 weeks to enroll, that would suggest it's only on pace for an extrapolated 7 million enrollees. But here's the shocker: The first week of open enrollment last year (Nov. 15-Nov. 21) yielded only 462,125 plan selections and 1.03 million applications submitted. In other words, the number of plan selections in the first week jumped by 17%, and application submissions rose by nearly 12%.
What makes the jump this year even more intriguing and impressive is that the Dec. 15th deadline -- the last day a consumer can enroll and expect health coverage to begin on Jan. 1st of the upcoming year -- was a full 15 days closer last year with the Nov. 15th start date. This year, consumers have an extra half month during which to act, which you might have expected would lead to weaker initial enrollment.
Of course, we should still keep in mind that enrolling via HealthCare.gov and through the 13 individual state-run marketplaces is still a very deadline-based process. Many consumers are procrastinators, and as we've witnessed in the two previous enrollment periods, we should expect enrollments to pick up as we near critical deadlines. These include Dec. 15, 2015 (the last day to obtain coverage that starts on Jan. 1, 2016), Jan. 15, 2016 (the last day to buy coverage that starts on Feb. 1, 2016); and Jan. 31, 2016, (the last day of open enrollment for coverage in 2016). The final two or three weeks could very well see enrollment figures that dwarf those from the first week.
The big unknowns in the 2016 enrollment period
The quick start for Obamacare is certainly a welcome surprise for a program that's received a lot of criticism, and which has seen enrollment estimates from the CBO fall. However, the biggest question marks this year relate to how consumers will respond to the combination of higher individual mandate penalties and rising premium costs.
This will be the second year in a row that the tax penalties for not purchasing health insurance are increasing significantly. In 2015, the penalty equaled the greater of $325 or 2% of an individual's modified adjusted gross income, or MAGI. In 2016, the penalty will jump to the greater of $695 or 2.5% of an individual's MAGI. In 2014, the average penalty paid by noncompliant individuals was about $190, or double the minimum possible penalty of $95. Thus, with a minimum penalty of $695 in 2016, an average penalty that's double the minimum (i.e., what happened in 2014) could equate to four-digits when uninsured taxpayers file their returns in April 2017.
What's uncertain is if these penalties will really coerce healthy individuals who are still uninsured to sign up. A penalty of $1,000 or $1,500 is a lot more painful than $190. Even so, the average cost of a silver plan across the country continues to creep closer to $4,000 annually without financial assistance. In sum, remaining uninsured is still often cheaper (assuming continued perfect health), so it remains to be seen if the individual mandate penalty is truly working as intended.
The other mystery is in not knowing what effect a substantial jump in premium prices will have on consumers. An abundance of factors have influenced premium prices this year, including the failure of more than half of Obamacare's healthcare cooperatives, rising prescription drug costs, and higher medical utilization rates associated with sicker individuals being among the first to sign up for Obamacare. Even though premium cost inflation in 2016 will be more or less in line with the average inflation witnessed over many decades, it's by far the highest increase consumers have witnessed this decade.
Attracting new enrollees and retaining existing members could prove difficult for some insurers -- especially those with minimal experience in the individual market. Insurers that have attempted to undercut national insurers in select markets may find that they're just not leaving themselves enough of a buffer to turn a profit. But, if these smaller insurers boost pricing too dramatically, they could chase away their current members.
Two key takeaways
In spite of these unknowns, there are two key takeaways for consumers and investors in the early going.
First, it's imperative that you really do your homework before enrolling for health insurance in 2016. As we saw in 2015, the best plan for you in one year was often not the best plan for you the next. You'll want to make an effort to shop around and ensure that you're really getting a good value for the plan you're purchasing. With the marketplace exchanges making a transparent comparison relatively easy, you shouldn't have too much difficulty making these comparisons. A bit of research could wind up saving you hundreds of dollars.
For investors, the reenrollment data will be key. A lot of enrollees (usually 85% or more) receive federal subsidies, so the impact of premium price hikes isn't likely to affect them in a meaningful way. However, for those who don't receive subsidies, we could see some plan, or even metal-tier, switching. Keep a close eye on the HHS updates with regard to what type of plans are being purchased (bronze, silver, gold, and platinum), as well as what percentages of consumers are reenrolling from the previous year. The upcoming year could prove challenging for insurers if too many consumers bow out of the program based on affordability, which makes the HHS data worth closely monitoring.