A new Department of Health and Human Services (HHS) report designed to show the new health care laws are increasing access and lowering costs may actually provide evidence that the program could be in the first stages of a financial death spiral.
When the Obamacare exchanges opened last year, most patients were expected to enroll in the least expensive, “bronze” plans. However, Wednesday’s “Premium Affordability, Competition, and Choice in the Health Insurance Marketplace, 2014” report from HHS shows a much larger than expected number of Americans enrolling in the “silver” plans.
National Center for Public Policy Research Health Care Policy Analyst David Hogberg says that could be very significant to the financial future of our health care system.
“About 65 percent of enrollees have chosen a silver plan. One of the theories behind this has to do with the fact that if you earn 250 percent of the federal poverty level or less, and you choose a silver plan, you get an additional subsidy t help you with your plan’s cost-sharing. So not only do you get subsidy to help you with your premiums, you also get one to help you pay for deductibles, co-pays and other types of cost-sharing,” said Hogberg.
“This cost-sharing subsidy can greatly increase the value of the silver plan. Who is likely to choose a plan that has a subsidy for cost-sharing? It’s probably people who are likely to have a lot of medical expenses, people that are sick. Some of the thinking has been that maybe this feature of the exchanges has attracted a lot of sicker people to the exchanges than it optimal. What we’ve been missing is any real evidence that a lot of people buying silver plans do in fact make 250 percent of the federal poverty level or less. So far, it’s been a guess,” said Hogberg.
He says that guess carries a lot more weight after the new HHS report.
“Yesterday’s report actually provided some pretty compelling evidence. You go down to Table 2 in the report and it shows the average premium subsidy that people got by plan type. This matters because the lower your income, the larger the subsidy you will get to help to help pay for your premiums. Guess which type of plan had the largest average premium subsidy?” said Hogberg.
“[Silver’s] average was $276 a month, which is about 20 percent higher than the subsidy for any other plan. What this strongly suggests is that silver plans are attracting a lot of people below 250 percent of the federal poverty level. If the reason they’re choosing silver plans is that they have a lot of health problems, then you’ve got an insurance pool that is probably sicker than average and that will be very costly to cover,” he said.
Hogberg cannot say with absolute certainty that the die is cast for the death spiral, in which premiums rise and young, healthy people drop out instead of paying high costs for insurance and that process keeps repeating itself until the system collapses underneath its own weight.
But the telltale sign in the coming months, he says, will be seeing just how much premiums rise. But how much do they need to be rising to be a signal of financial instability in the health care sector?
“I think you would probably be seeing at least 10 percent or more on average and we’ve started to see a bit of that,” said Hogberg.
Ohio insurers are already announcing that average premiums will be increasing 13 percent next year. It’s 12 percent in Vermont. Virginia and Washington state rates will be jumping nine percent on average, but on insurer in Washington is asking for a 26 percent hike in premiums. Individual insurers in Arizona are requesting increases of 25 percent and 14 percent respectively, but the overall state average has not yet been calculated.
“If we see really high increases like that, there’s going to be a lot of incentive for young and healthy people who aren’t getting very big subsidies or getting no subsidy at all to drop out of the exchanges,” said Hogberg.
Also this week, multiple sources reported that many Americans may soon be looking at higher premium costs because their subsidies will be reduced or eliminated altogether because their financial information on their enrollment forms did not match what the IRS had on file.
Hogberg says this is a headache that was totally preventable.
“To some extent it’s the administration’s own fault that this has happened. They didn’t have the technology ready to be able to check people’s income with the IRS but they went ahead with the exchanges anyway. And then, about a year ago, they said for a number these exchanges we’re going to rely on the honor system to report your income,” said Hogberg, saying people took a shot at fudging their numbers when it appeared the government had no intention of enforcing the law.
