STEPHEN PARENTE: THE SHORT UNHAPPY LIFE OF OBAMACARE
http://online.wsj.com/articles/stephen-t-parente-the-short-unhappy-life-of-obamacare-1402441569?mod=Opinion_newsreel_1
By 2024 there will be more than 40 million uninsured, roughly 10% more than today.
President Obama claims the debate over the Affordable Care Act is “over,” but in coming weeks and months expect it to intensify. Health-insurance companies will soon begin releasing preliminary rate estimates for next year’s plans. Industry experts say consumers should once again brace for significantly higher premiums.
Fearing the political fallout before November’s elections, the administration last month quietly increased by billions of dollars the “risk corridor” funds that insurance companies can use to staunch their losses.
Yet since premium growth has averaged at least 5% over the past five years, it is unlikely the law’s federal subsidies will increase enough to make up the difference in out-of-pocket premium costs. As this happens, lower- and even middle-income consumers will be forced out of the private insurance market. As my colleague at the Medical Industry Leadership Institute, Michael Ramlet, and I show in a paper published last month, the law’s structural problems will take years to fully manifest.
Using the 2014 health-insurance exchange enrollment data and a micro-simulation model funded in part by the Department of Health and Human Services, we estimate the national and state impact of the Affordable Care Act on insurance prices and enrollment from 2015-24. The average premium for an individual exchange health plan (Silver) will increase by $1,375 by 2019 while the average family premium for the same plan will increase by $4,198—outpacing the average increases from 2008 to 2013. Consumers who saw spikes in their health premiums last year will experience the same trauma this year. But the steepest price increases will not occur until 2017 and after, when three things happen.
First will be the Affordable Care Act’s “essential benefits” requirements. All plans—including those currently exempted for hardship and old plans extended for various reasons—must provide all of the law’s mandated benefits from Jan. 1, 2017. On average roughly 15% of plans offered in 2013 will not qualify for sale on the insurance exchanges once all extensions are completed. Depending on the state, as many as 60% of the plans sold in 2013 would not be permitted for sale.
The law’s “reinsurance” program will also expire in 2017. Health insurers will no longer be able to bill the government for 80% of a patient’s health-care costs when they make more than $45,000 in annual claims. The multibillion-dollar risk corridors for insurance companies will also sunset in 2017—ending the taxpayer bailouts that kick in when insurance companies providing ACA plans lose money. Insurance companies will have neither option by 2017, leaving consumers to pick up the tab through premium payments. Federal subsidies will be unable to keep up with such dramatic rate spikes.
Confronted with this cost crisis, consumers will react the only way they know how: by looking for cheaper options such as the remaining high-deductible health plans offered by private companies and the exchanges as well as plans with very limited physician and hospital networks geared to achieve maximum efficiency for the average patient. These plans are likely to provide no or limited access to specialized facilities and physicians. Rising premiums will create a cyclical exodus from insurance plans, with each wave of departures fueling premium spikes that cause even more departures.
Employer-sponsored coverage will also come under pressure. The data show that an increasing number of businesses are likely to cancel their plans in favor of letting employees get coverage on the exchanges—the same exchanges many will be fleeing. My research indicates that over five million will lose their employer-based insurance by the end of the decade. This is consistent with the Congressional Budget Office estimate that the ACA will lead to a seven-million person decline in insurance provided by employers by 2020. The penalty when an employer drops a health plan is typically cheaper than providing the plan.
This leaves the newly uninsured with two options: If they qualify by their income, sign up for Medicaid or stay uninsured and face a penalty. Many will choose the first option. In a newly completed, as yet unpublished paper by George Washington University’s Bianca Frogner and me, we estimate that Medicaid enrollment will increase by 2%-3% annually through 2024. Yet this will not capture everyone. Many will not be eligible for the program, because either they earn more than 133% of the federal poverty level (currently $11,670 for an individual, $23,850 for a family of four) or their state did not expand Medicaid.
Either way, there will be a significant number of uninsured Americans unwilling or unable to pay for the inflated insurance available on the exchanges and forced to pay penalties, which for 2016 and thereafter will be the greater of $695 or 2.5% of income. More will choose this option every year. By 2024, Ms. Frogner and I estimate that there will be more than 40 million uninsured, roughly 10% more than today.
So perishes the Affordable Care Act’s promise to deliver universal health care—its fatal conceit. The autopsy will show that it died from a lack of affordability, leaving behind millions of Americans who were sold a bill of goods. One thing is painfully clear: that isn’t what the doctor ordered.
Mr. Parente is associate dean of the Carlson School of Management and director of the Medical Industry Leadership Institute at the University of Minnesota.
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