Have you heard? The Affordable Care Act is teetering on the edge of collapse. Or at least it is according to the law’s ever-hopeful critics on the right, who’ve lately been churning out column after column announcing health care reform’s imminent failure.
“ObamaCare’s image of invincibility is increasingly being exposed as a political illusion, at least for those with permission to be honest about the evidence,” the Wall Street Journal editorial board confidently explained last week, predicting the law would need to be rewritten in 2017 no matter who won the presidency. National Review Editor Rich Lowry concurred: “Obamacare is an unwieldy contraption that is sputtering badly … the program is so poorly designed that, surely, even a new Democratic president will want to revisit it to try to make it more workable.” On Wednesday, Lowry’s colleague Kevin D. Williamson grabbed a shovel and started piling dirt on the poor, apparently deceased legislation. “Obamacare, meaning the operating model that undergirded the law that Congress passed and President Barack Obama signed with great fanfare—is dead, and it will not be revived,” he wrote, adding for good measure that “rigor mortis” had already set in. Weighing in at the New York Post, Betsy McCaughey simply informed us that Obamacare is “heading toward a death spiral.”
Now, you might be tempted to take all of this with grain of salt, given conservatives’ track record of prematurely predicting doom for the health law. And you’d be right to. There is no evidence that Obamacare is actually at death’s door. Rather, it’s going through some growing pains. This isn’t surprising when you consider that we are only now entering the third open-enrollment season after a complete overall of the American health insurance system. The law is basically a toddler. Shocker: The kid isn’t quite ready to run an Olympic relay.
So why do Obamacare’s doomsayers think it’s hurtling toward oblivion? Their reasons basically boil down to the following:
- Enrollment this year will probably be lower than predicted.
- Insurers have been losing money.
- As a result, premiums are rising.
- And that may deter more people from enrolling in the future.
Now let’s run through that in a bit more detail.
Earlier this year, the Congressional Budget Office projected 21 million Americans would purchase health coverage through Obamacare’s insurance markets during 2016. That number turned out to be overly optimistic. The Department of Health and Human Services now says it expects the total will be closer to 10 million, barely up from last year. Only a quarter of the eligible uninsured are projected to enroll through the health care exchanges. Millions of Americans, it seems, are still expected to forgo insurance entirely rather than spend money on an Obamacare plan.
Who’s choosing to go without coverage? According to HHS, it’s mostly the young and healthy, whose premiums insurers need in order to subsidize the sicker customers that they’re required to cover under Obamacare’s regulations. If Aetna and Cigna and their competitors can’t enroll enough of those hardy twentysomethings, it could be difficult for them to turn a profit.
Which, right now, they aren’t. According to a recent McKinsey Study, insurers collectively lost $2.5 billion on individual market plans in 2014. Some companies made money while others lost it, and in certain parts of the country the pain was worse than others; an analysis by the Urban Institute found just 11 states where on average insurers spent more on patient claims than they earned in premiums. But as the government phases out the temporary programs that compensate insurers who accidentally enroll too many unhealthy customers, their margins are going to come under even more pressure. In the meantime, a large number of the nonprofit insurance co-operatives set up under the reform law with federal support have already collapsed thanks in part to their unbalanced customer mix.
Last year’s losses led to this year’s premium hikes. According to the government, the cost of the average benchmark silver plan sold on the federal exchange jumped 7.5 percent, while an analysis by the health consulting group Avalere finds the price of cheaper coverage options rose even faster. Again, there were big geographic differences; in three states, the price of a benchmark silver plan rose more than 30 percent, while in four it actually dropped. But overall, insurers are raising their premiums after a year in which they bled red ink.
The worst-case scenario here is that expensive prices discourage more Americans from buying coverage through the exchanges, leaving them full of sick and older customers. Eventually, insurers could begin to pull out or charge even more, which could beget the dreaded death spiral, wherein escalating prices push out healthy customers until the system falls apart.
Some real talk: We are nowhere near the death spiral.
First, let’s discuss those low enrollment figures. One reason the Congressional Budget Office thought so many people would buy insurance through the exchanges was that it expected 6 million Americans to lose their employer-based coverage. That doesn’t appear to have happened. The most recent Census data show that from 2013 to 2014, about 600,000 fewer Americans got insurance through their jobs, a change that was statistically indistinguishable from zero. If fewer people take advantage of Obamacare because their boss has decided not to dump them into the individual market, it’s not exactly a reason to question the law’s effectiveness.
As for the uninsured who aren’t enrolling? The tax penalty the ACA imposes on people who don’t buy health insurance—better known as the individual mandate—is just fully kicking in this year, which will make going without coverage more expensive. It might take a while for people to get the picture; 40 percent of the uninsured in the HHS survey didn’t know the penalty existed. But once they see their tax refund evaporate come April, they may decide to sign up for a plan next time around. (They also might discover they’re eligible for federal subsidies to buy a plan, which many uninsured appear to not know.)
The losses insurers have suffered are also a bit less worrisome than they first appear. Part of the problem is almost certainly that some companies misjudged how old and sick their customers would be. But, as Mercatus Center researcher Brian Blase notes, others likely underpriced their plans on purpose in order to lure customers, knowing that a lot of them would be too lazy to change insurers when prices crept up later on.
And about this year’s price increases: While they might give some people sticker shock, a lot of the pain is going to be ameliorated. The Kaiser Family Foundation found that, after receiving federal subsidies, a 40-year-old nonsmoker making $30,000 a year would pay slightly less for a benchmark silver plan than last year across most of the country.
So the projected enrollment shortfall is less terrible than the right would have you believe. The losses by insurers are less of a surprise. And the price increases are going to cause less suffering for consumers than the headlines about death and decline would have you think. Don’t believe me? Here’s Megan McArdle of Bloomberg View, who is typically one of Obamacare’s harshest critics: “We’re certainly not in death spiral territory now, and it’s too early to say whether we’re headed there, because the program is still evolving.”
Now that we’ve laid to rest the doomsday theories, it’s important to acknowledge that the law isn’t completely home-free. When I asked Kaiser Family Foundation Senior Vice President Larry Levitt about the purported decline of the Affordable Care Act, he told me it was “premature to declare Obamacare in trouble.” That said, in an email he outlined a number of reasons why the government needs to drive up enrollment in the future for the law to truly fulfill its promise:
1. To make a further dent in covering the uninsured, more people need to enroll in the marketplace and Medicaid. So far, there have been historic gains in coverage. But if coverage plateaus where it is now, it would be difficult to call the health law a success.
2. More healthy people need to enroll to balance the risk pool and keep premium increases under control. There are no major warning signs yet, but little new enrollment over the next couple of years could spell trouble, particularly in some states.
3. Enrollment needs to grow in order to keep insurers in the game. The marketplaces are still small in the scheme of the larger insurance market. Major insurers are participating because they expect it to grow and generate profits.
Obamacare is hardly a failure, but it’s hasty to call it an unequivocal success yet.
That seems like a reasonable analysis. It’s certainly better than kicking an imaginary corpse.