The Importance of Unsubsidized Exchange Enrollees

Attempting to pre-empt concerns about rising premiums on Obamacare Exchanges in 2017, the Department of Health and Human Services (HHS) over the recess released a report claiming that federal subsidies will insulate most Americans from the effects of even a massive premium spike for Exchange plans. But in focusing on the number of individuals who qualify for federal subsidies, the HHS report missed an important detail: To become more financially stable and sustainable, the Exchanges need greater enrollment by those who do not qualify for subsidized plans.

I first noted back in March 2015 the split in Exchange enrollment: Only individuals who qualify for the richest subsidies have signed up for coverage in significant numbers. While the numbers have shifted slightly, the same dynamic remains. An updated analysis from consulting firm Avalere Health found that 81% of the potentially eligible individuals with incomes between 100-150% of the federal poverty level—those who qualify for the richest premium subsidies, and cost-sharing reimbursements to help with things like deductibles and co-payments—selected an Exchange plan. But enrollment declines substantially as income rises. Only 16% of eligible individuals with incomes between three and four times poverty selected a plan, and only 2% of those with income above four times poverty—those ineligible for both premium and cost-sharing subsidies—signed up.

While insurance Exchanges in general have suffered from lackluster enrollment, unsubsidized coverage lags even further behind earlier predictions. When Congress enacted the bill into law in March 2010, the Congressional Budget Office (CBO) predicted that in 2016, Exchanges would enroll a total of 21 million Americans—17 million receiving insurance subsidies, and 4 million purchasing unsubsidized coverage. As of March 31, the Exchanges had enrolled 11.1 million Americans—9.4 million buying subsidized coverage, and 1.7 million in unsubsidized plans. When it comes to meeting the 2010 CBO projections, unsubsidized enrollment (42.3%) lags more than ten percentage points behind enrollment of individuals receiving federal subsidies (55.2%).

Although an imperfect proxy, rising income does in the aggregate correlate with longer life-expectancy and better self-reported health status. If wealthier individuals who do not qualify for insurance subsidies enrolled in Exchange plans, the overall risk pool of the Exchanges might improve. As it stands now, however, Exchange enrollees are sicker than those in the average employer-provided health plan. What the HHS report tried to highlight as a feature—the large number of enrollees receiving subsidies—is in reality a bug, as the poorer, sicker population has proved difficult for insurers to cover.

The HHS study contained other material shortcomings. It did not acknowledge that, according to multiple estimates, off-Exchange enrollment nearly matches Exchange enrollment—a fact with two major implications. First, it means more Americans will pay the full freight of higher premiums than the Administration would have you believe. Second, it reinforces that insurers can circumvent the statutory requirement to combine off-Exchange and on-Exchange enrollment into a single risk pool by only selling policies off the Exchange. Some carriers have effectively segmented the market in two by doing just that.

Most obviously, while the HHS report advertised how insurance subsidies would cushion the effect of higher premiums for most Exchange purchasers, it did not attempt to estimate the impact on the federal fisc of that higher spending. Others have also noted that the Department again declined to release the underlying data behind its assertions. But by highlighting how much of their population receives federal subsidies, HHS essentially advertised Exchanges’ one-dimensional nature—the same aspect that has many insurers heading for the exits.