![Obamacare enrollment increased this year, but only the poorest among the uninsured have so far signed up. [Credit: Arkansas Times]](https://i0.wp.com/www.dougsbriefcase.com/blog/wp-content/uploads/2015/03/credit-ark-times.jpg)
Obamacare enrollment increased this year, but only the poorest among the uninsured have so far signed up. [Credit: Arkansas Times]
That’s the question that health care analysts are asking as they pore over the results of the Obamacare open season that concluded on February 15.
On the surface, the data released earlier this month by the Department of Health and Human Services are encouraging. Nearly 11.7 million people selected a plan this year, compared with just more than 8 million during the 2014 open season.
There are some cautionary signs. Despite the influx of new subscribers, the age profile continues to skew older. Nearly half are 45 or older and 26 percent are over 55. Interest among the young remains largely unchanged over last year.
So is interest among middle income people who lack coverage. Enrollment has been dominated by those with the lowest incomes. HHS reports that 83 percent of people who have selected plans have incomes between 100 percent ($11,770) and 250 percent ($29,425) of the federal poverty level (FPL). Medicaid, meanwhile, has grown by nearly 20 percent since Obamacare was launched, swelling its ranks to 70 million. Roughly 22 percent of the U.S. population is now on Medicaid, despite the refusal of 22 states to expand their programs.
An Avalere study released last Wednesday gave further evidence that Obamacare has so far largely attracted the poor and near poor and holds little appeal for uninsured middle income people. The health consultancy found that 76 percent of eligible uninsured people with incomes less than 150 percent of FPL ($17,655) have selected a plan.
Only two percent of uninsured people with incomes of 400 percent or more of FPL ($47,080) enrolled. Put another way, 98 percent of uninsured people who were most able to afford insurance and most likely to be penalized for not buying it declined to enroll.
This paradoxical behavior results in part from Obamacare’s paradoxical design: as premiums rise, the value of insurance coverage falls.
The chart below illustrates this paradox. It presents the Avalere findings (red bars), which show the percentage of eligible people (by percent of FPL) who have enrolled in coverage. It also shows the combined cost of premiums and deductibles (green scale on the right) at various income levels for a 30-year-old individual (yellow line) and a 40-year-old couple (dark blue line).
As the lines slope upwards, the bars cascade downward. Unless the sum of premiums and deductibles is very low, most people don’t seem interested in health insurance.
The Avalere study is based on an analysis of healthcare.gov enrollment data. I used healthcare.gov to compile illustrative information on premiums and deductibles for a Blue Cross (PPO) Silver plan available in Mitchell County (KS). Premiums and deductibles vary by plan and county, but the general trajectory of the yellow and dark blue lines would be similar for other plans in other counties throughout the country.
Regardless of location or insurance product, Obamacare subsidies assure that people with the lowest incomes pay the smallest premiums and get the most generous coverage. Those who pay more for insurance get less generous coverage.
The law provides two forms of subsidies. The first limits premiums and gradually phases out with income. The second form of subsidy requires insurers to offer more comprehensive coverage to people with low earnings, reducing deductibles and cost-sharing. Unlike premium subsidies, which phase out gradually with income, these cost-sharing subsidies drop in cliffs – at 151 percent and 201 percent of FPL – and disappear entirely at 251 percent of FPL.
The lines illustrate how the phasing out of these two subsidies affects two hypothetical enrollees. At 100 percent of poverty, a 30-year old (yellow line) would pay an annual premium of just $235 for coverage, or less than $20 per month. Her deductible would be just $250, so she’ll spend a maximum of $485 before her coverage kicks in (green scale on the right). At 150 percent of poverty, her monthly premium rises to $58, but the sum of her annual premium and deductible is still less than $1,000. Little wonder that 76 percent of eligible people with incomes between 100 and 150 percent of FPL have signed up for coverage.
That percentage drops to 41 percent once we look at people with incomes between 151 and 200 percent of FPL, according to Avalere. To see why, consider what happens to deductibles for our hypothetical couple should their income rise from 150 percent of FPL ($23,895) to 151 percent of FPL ($24,054). That $3 per week pay increase results in a tripling of their health insurance deductible to $1,500. (Our 30-year-old’s deductible also triples to $750.)
Though their premiums still are heavily subsidized (they pay just $80 per month for coverage, an 84% discount against the unsubsidized premium of $515), the couple now has to think about whether insurance that requires them to pay the first $1,500 in claims out of their own pockets is worth the cost. The sum of premium and deductible — $2,462 – means that they would have to spend more than 10 percent of their income before their policy would begin paying most medical bills. It is reasonable for them to decide this is a bad deal, as three in five uninsured people in this income range so far have.
Our couple continues to benefit from the subsidies, but at 251 percent of FPL ($42,215) are still required to pay nearly $270 monthly for coverage with a $5,000 deductible. The sum of that couple’s annual premium ($3,239) and deductible comes to $8,239, or nearly 20 percent of their income. Our 30-year-old isn’t doing much better. She is now expected to pay $200 per month for coverage with a $2,500 deductible. Which helps explain why 4 out of 5 uninsured people with incomes between 251 and 300 percent of FPL have not enrolled in coverage.
That percentage continues to decline by income group until it finally reaches just 2 percent of people who earn more than four times the poverty level.
There are three possible explanations for why take-up rates are so low for people with incomes above 150 percent of FPL. One is that the government hasn’t done a good enough job educating people about the benefits of Obamacare. Most aren’t yet familiar enough with the product or comfortable enough with the enrollment process, the argument goes, something that will improve with time. That is certainly possible. No one expected big enrollment totals during the first two open seasons. Perhaps signing up for coverage will become more widespread next year.
Then again, people are behaving as though they understand the program’s costs and benefits perfectly well. Those with incomes below 150 percent of FPL are getting the best deal and more than ¾ of them already have signed up. Declining participation at higher income levels reflects the deterioration of that value proposition: the higher your premiums, the greater your cost-sharing. Remaining uninsured can be a rational decision even for people eligible for subsidies, as our hypothetical consumers illustrate.
A second explanation implicitly concedes that most people will continue to refuse coverage despite outreach and education efforts. Caroline Pearson, senior vice president of Avalere, argues that government should more aggressively enforce tax penalties on the uninsured.
“So far, tax credits do not appear to be enough to entice participation,” she said, “so greater emphasis on individual mandate penalties may be needed to help increase enrollment among low- and middle-income individuals.”
We’ll soon have a better idea of how effective coercion will be in inducing people to buy insurance. An estimated six million people are being forced to pay the new tax on the uninsured as they file their 2014 tax returns. This tax, which is capped at one percent of income this year, will double next year. HHS has announced a special enrollment period for those who are now being hit with the tax. If they sign up for coverage by April 30, they won’t have to pay the tax penalty again next year. If a substantial portion of those six million sign up for coverage, perhaps Ms. Pearson will be proven right. Stiffer penalties might prod people into buying insurance, even though they don’t think it’s worth the price.
Health policy analyst Robert Laszewski doubts the potential effects of education and coercion. “The answer,” he writes, “is not a greater emphasis on the individual mandate penalties when people choose not to pay more than they can afford for a lousy product.” That product is lousy, Laszewski argues, because government has been so prescriptive in dictating what insurance must cover and what it may not. The law restricts insurers from offering an innovative variety of products, allowing them to differentiate themselves from their competitors only by premiums, cost-sharing and provider networks.
Instead of getting tougher on the uninsured, he proposes scrapping penalties on individuals and businesses, while allowing insurers to offer a broader range of coverage options. The law should be amended to provide people with “health insurance choices they find worth the money.”
Perhaps expanding the menu of options will motivate more consumers to choose coverage. But more items on the menu won’t tempt people who aren’t hungry. It may be that millions of Americans prefer to spend their money on things other than health insurance, despite government efforts to educate them, strong-arm them with tax penalties or entice them with more choices.
Policymakers may consider such behavior irresponsible, but that’s not entirely fair. The poor and near-poor are getting very generous coverage at steeply discounted prices subsidized by taxpayers; the sick obtain insurance at rates far below the costs their care will impose on their fellow policyholders and taxpayers. By buying health insurance at rates subsidized by others, individuals in both groups are acting out of self-interest. If self-interest is honorable when it imposes costs on others, why is it dishonorable when it leads a consumer to refuse coverage that doesn’t provide much value?
Obamacare has so far functioned as an income transfer program in which middle income people finance Medicaid expansions and health insurance subsidies for the poor and near-poor. Most uninsured middle class people have so far declined to purchase insurance because the coverage isn’t worth the price. Their taxes are subsidizing coverage for others. It seems unfair to hit them with an additional tax for refusing to buy insurance for themselves, especially when that coverage is less valuable than the coverage they are subsidizing for others.
Obamacare’s “pay more, get less” regime has made remaining uninsured an economically rational decision even for millions of people who are eligible for subsidies. Which may explain why the government is underachieving in its efforts to persuade millions of people to buy a product they just don’t think is worth the price.
“The second form of subsidy requires insurers to offer more comprehensive coverage to people with low earnings, reducing deductibles and cost-sharing.”
I am a little confused. The “pay more, get less” theme of this article and the quote above from the article itself suggests that the lower one is on the economic scale, the better one’s actual healthcare coverage is under Obamacare. But elsewhere in the article it states that government has been ” … prescriptive in dictating what insurance must cover and what it may not … allowing them to differentiate themselves from their competitors only by premiums, cost-sharing and provider networks.”
Do those at the lower income levels have coverage for healthcare services and benefits that higher-income individuals do not? Or are the same healthcare plans available to all, just increasingly costly as one’s income rises? If the former, could you provide specific examples of services and benefits that those at the lower end of the income spectrum would have access to that those at the middle to upper end would not?
Thank you, and thank you for your informative and well-written piece.
Very good question and one to which I’m sorry to be so slow to respond.
There are two things at work here — the essential health benefits package and the enhanced coverage for people with low incomes. Let’s look first at the essential health benefits package. Each state has a benchmark plan that covers some items and services and excludes others. Insurers are required (whether selling through the exchange or outside it) to offer this same benchmark plan. A plan is not permitted to exclude coverage of items and services that are in the benchmark and they are forbidden to cover items and services that are excluded. They are permitted to differentiate themselves through premiums (so long as their premiums are approved by state and federal regulators) and by networks. They can, for example, offer the benchmark plan through a broad panel of preferred providers or they can require policyholders to get their care from a very restrictive physician network.
They also can vary “cost-sharing,” subject to strict limits. This is where the so-called “metal levels” come in. So a Silver Plan must have an actuarial value of 70 percent, meaning that for an average population, insurance would pay 70 percent of the cost of covered, in-network services. Bronze plans have an actuarial value of 60 percent; gold, 80 percent; and platinum, 90 percent.
This difference in actuarial value is reflected in premiums and cost-sharing. A platinum plan will cost more but will have lower deductibles than a silver plan. Both plans cover exactly the same items and services; the only distinction is the tradeoff between premium and cost-sharing.
All of that is true for people with incomes above 250 percent of FPL. Below that, the government requires insurers to juice up the coverage. And while premium subsidies are set based on the second cheapest Silver Plan in an area, people below 250 percent of poverty who purchase a silver plan actually get more generous coverage. From 100–150 percent of FPL, the insurer has to juice-up the actuarial value to 94 percent (which makes it more valuable than a platinum plan). In our example, the Blue Cross plan enhances the coverage in part by reducing the deductible to $250. At 151 percent, the actuarial value drops to 87 percent. At 201 percent of FPL, it is 73 percent. And at 251 percent of poverty, it reverts to 70 percent.
My post theorizes that this juicing up of coverage helps explain why takeup rates are so high for people with incomes up to 150 percent of FPL and so low for everyone else. When buying coverage, people care not only about what they’re paying (premiums), but what they’re expected to pay should they require medical care (deductibles and other cost-sharing). Nobody is sophisticated enough to know the actuarial value of the insurance they choose, but everybody can (and I suspect most do) calculate premium+deductible. If I know that I have to spend 10 or 20 percent of my income before my medical coverage fully kicks in, I’m probably not going to buy it, even if my premiums are heavily subsidized.
It’s still just a theory, of course. It may be that tax penalties will induce people to buy coverage that isn’t worth the price. Or it may be that, with time, more people will enroll as they become more comfortable with the process.
But my hypothesis is that the price/value equation will make Obamacare unattractive to most people with incomes above 200 percent of FPL.
Excellent article exposing the TRUTH about the “Affordable (sic) Care Act.” I am apparently one of the 2% of morons paying an excessive price for almost nothing. I only do it because I consider it to be catastrophic coverage. I had over $5000 in medical bills last year and paid nearly $5000 for my Obamacare insurance premiums (which paid $0 towards the $5000 in medical bills). Before Obamacare, I paid about half as much for a plan with a $2500 deductible. It’s enough to make me purposely scale back my business to earn less money (I’m self — employed). It’s truly amazing how uneducated most Americans are about the truth of Obamacare. If they have employer provided healt insurance and it doesn’t affect them, they just don’t educate themselves about it. The liberal media has done an excellent job of keeping the truth a secret. Obamacare is just another welfare program.
Very sorry to hear that, Lynne. We’ve somehow forgotten that many who have enrolled in Obamacare plans did so only because the law required insurers to cancel the coverage they liked. Now they’re paying more for less. There has to be a better way.
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