It'll likely go down as the law that defines the presidency of Barack Obama, but the Affordable Care Act (commonly known as Obamacare) is about as polarizing a law as they come.
According to the latest Health Tracking Poll from the Kaiser Family Foundation in February, 46% of its respondents had an unfavorable view of Obamacare compared to 41% who claimed to have a favorable view of the health law. The remainder were undecided or refused to answer. This bifurcation has existed, with minor fluctuations, for nearly six years.
Despite the broad differences in opinion on whether Obamacare is good or bad for individuals or families, it nonetheless became the law of the land as of Jan. 1, 2014, and based on the final enrollment tally for calendar year 2016, about 12.7 million people enrolled. This included approximately 3.1 million people who signed up in the one dozen states that operate their own marketplace exchange and the 9.6 million people who signed up via the federally run HealthCare.gov. If we account for Medicaid enrollees in the states that chose to expand their Medicaid programs, this figure jumps well over 20 million.
Why Obamacare enrollment really matters
The success of Obamacare in reaching the uninsured is critical for a number of reasons.
To begin with, expanding enrollment encourages insurers to participate, and greater participation should, in theory, lead to more competitive premium pricing. Obamacare's marketplace exchanges were set up in such a way as to encourage price transparency and competition, which could allow consumers to make a more educated purchasing decision.
For insurers, new members are likely healthier since people who were sick or had pre-existing conditions were among the first to enroll in 2014. Thus, new additions are more than likely going to be profitable members for insurers.
Finally, growing Obamacare enrollment also lowers the uninsured rate and reduces the risk that hospitals and medical providers are going to have to provide care to someone who can't pay for services rendered. Hospitals and primary care physicians are forced to eat unpaid costs, which usually get parsed out to paying members in the form of higher prices for visits, procedures, and other medical services. In a way you could say that as the rate of uninsured people falls, the rate of medical cost inflation may fall as well.
However, this pie-in-the-sky plan may be all for naught, according to an even newer study released by the Kaiser Family Foundation (KFF).
Obamacare enrollment may be plateauing
Based on data from KFF, Obamacare enrollment totaled 8 million at the end of 2014, 11.7 million by the time 2015 came to a close, and 12.7 million, as mentioned above, by 2016. What KFF intends to show by this data is that enrollment growth is slowing despite the fact that about 30 million people remain uninsured.
According to KFF estimates, the 12.7 million people that selected a plan in 2016 represents 46% of the potential eligible member pool. However, an average of 59% of the eligible member pool was enrolled in the top 10 states. KFF suggests that if all states were as efficient as the 10 best-performing states, some 16.3 million people would enroll. After accounting for attrition caused by nonpayment and dropped coverage, 14.7 million people would supposedly be left insured. This, KFF believes, is the ceiling on Obamacare enrollment.
On the surface, enrolling 59% of qualified consumers might seem disappointing. But, KFF offers three explanations as to why enrolling 59% of eligible people is actually quite good, as well as why Obamacare has a perceived enrollment ceiling.
Three reasons why Obamacare enrollment may have a ceiling
First, KFF suggests that affordability of Obamacare plans remains a challenge. When KFF conducted a poll on affordability, almost half (46%) of uninsured, non-elderly adults admitting to trying to get health insurance, but being unable to because of cost. KFF also suggests a lack of knowledge surrounding eligible subsidies may be playing a role here, too.
Secondly, KFF believes that consumers may be buying health insurance outside the ACA marketplaces. There aren't a lot of people that qualify, but there are grandfathered (plans prior to March 2010) and transitional plans (plans issued after Obamacare was signed into law, but before implementation) which are still eligible for consumers to enroll in, despite these plans not being ACA-compliant. Other consumers simply choose to purchase their health insurance from a private exchange or from the insurer directly.
Finally, KFF points out that the availability of employer coverage hasn't declined as initially expected. The number of firms that were offering health benefits to employee in 2015 is "statistically unchanged" from 2014, meaning there hasn't been an employer-to-exchange exodus as once expected.
Missing the bigger picture
Although I'd agree with some of KFF's reasoning behind why Obamacare's enrollment is "capped" at 14.7 million, KFF may also be missing some of the biggest components behind why the remaining 30 million people are stuck on the sidelines.
Point one would be a lack of universal Medicaid expansion. The Supreme Court issued a ruling that allowed each individual state to decide whether it wanted to participate in an expansion of their Medicaid program. Ultimately, 31 states chose to expand. The remaining states left millions of consumers earning more than 100% of the federal poverty level, but below 138% of the FPL, without access to marketplace subsidies or affordable health insurance. These consumers remain eligible targets of Obamacare, but the chances of these individuals obtaining affordable insurance is nearly zero.
A second problem is that the shared responsibility payment may be ineffective at attracting young adults, and concurrently that young adult enrollment is below expectations. Young adults are a prized group for insurers because they're often healthy and less likely to go to the doctor. In other words, young adults provide profits that help offset the medical costs associated with older and/or sicker patients.
The shared responsibility payment, or SRP, is a penalty associated with not purchasing health insurance. In 2014, the average penalty was a mere $190, mainly because it was designed as a teaching tool rather than punishment during the first year of enrollment. However, KFF predicts that the average SRP in 2015 and 2016 will be $661 and $969, respectively. That may sound like a lot, but even the cheapest insurance plan could cost $200 to $300 per month, equating to $2,400 to $3,600 per year. In this context, an individual who never goes to the doctor and is looking to save money will likely choose to just take the penalty. Even with possible insurance premium deductions, the penalty is likely cheaper than buying health insurance.
Finally, the failure of the risk corridor can't be discounted in terms of capping enrollment. The risk corridor was designed to take excessive profits from the top-performing insurance companies and use those funds to support struggling health-benefit providers in an effort to encourage new insurance participants and give them a year or two to get their premium pricing right. The more plan participants, presumably the more competitive the pricing.
However, of the $2.87 billion requested by struggling insurers from the risk corridor in 2016, just $362 million was parsed out, or 12.6%. This lack of funding put 12 of Obamacare's 23 healthcare cooperatives out of business, and with it took a low-cost health insurance opportunity away from around 800,000 Americans.
It's my presumption that these three factors are playing an even larger role than what KFF listed in its report.
Where we go from here is anyone's guess
Nonetheless, the result is the same: Obamacare's future is very much clouded by uncertainty. Young adult enrollment is still below expectations, large insurers such as UnitedHealth Group and Humana are threatening to leave ACA exchanges by as early as next year due to excessive plan losses, and the vast majority of remaining presidential candidates would just as soon scrap Obamacare.
My suggestion is to pay very close attention to this year's presidential election since the new president could have substantial sway as to what happens next with Obamacare. I'd also recommend you closely monitor the progress of large-scale insurers like UnitedHealth and Anthem on ACA exchanges to gauge whether higher enrollment in 2016 is actually helping, or hurting, their performance.
Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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