Obamacare’s Cost per Beneficiary Explodes with Shrinking Enrollment

CBOThe Congressional Budget Office’s latest budget estimate shows Obamacare’s costs per beneficiary have exploded, as enrollment in Obamacare’s broken exchanges collapses. January’s update estimates 2016 exchange enrollment at 13 million people (p. 69).  Although the Administration had previously downgraded its estimate of Obamacare enrollment, this is the first significant change by the non-partisan CBO.

What is really shocking is the January update still estimates tax credits, which subsidize insurers participating in exchanges, will cost taxpayers $56 billion this year (p. 182). That amounts to about $4,308 per enrollee (although not all are subsidized). Back in March 2010, CBO estimated that 21 million people would be covered in exchanges in 2016, for a total cost of $59 billion in tax credits (pp. 20-23). That would amount to about $2,810 per enrollee.

As recently as March 2015, CBO was still assuming 21 million enrollees in Obamacare’s exchanges this year (Table 2). In the January update, the CBO has only changed its estimate for 2016 enrollment, not future years. Next March’s update will include a more thorough analysis including future years, and we can expect those estimates to be similarly downgraded.

This leads to the conclusion that Obamacare exchanges are, in fact, high-risk pools for sick individuals who cannot get coverage elsewhere. They are not a properly functioning, broad-based, market for health insurance.

And, by the way, the CBO confirms that Obamacare kills jobs:

CBO anticipates that several developments in federal fiscal policy under current law will affect the economy through their impact on the labor market. The most sizable effects stem from provisions of the Affordable Care Act (ACA). The ACA’s largest effect on the labor market—especially as overall employment conditions improve—will come from provisions of the act that raise effective marginal tax rates on earnings, thereby reducing how much some people choose to work. The health insurance subsidies that the act provides through the expansion of Medicaid and the exchanges are phased out for people with higher income, creating an implicit tax on some people’s additional earnings. The act also directly imposes higher taxes on some people’s labor income. Because both effects on labor supply will grow over the next few years, CBO projects, they will subtract from economic growth over that period.

(“The Budget and Economic Outlook, 2016 to 2026,” Congressional Budget Office, January 25, 2016, p. 38.)


Comments (63)

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  1. Ron Greiner says:

    John, you write, “This leads to the conclusion that Obamacare exchanges are, in fact, high-risk pools for sick individuals who cannot get coverage elsewhere.”

    Your “ELSEWHERE” is employer-based health insurance because Obamacare has killed the Individual Market so employer-based health insurance companies would not have competition.

    Tonight is the 9th Presidential Debate and we have not had an Obamacare question yet. Sounds impossible but its true. Ted Cruz in Iowa is saying its illegal to buy insurance from one of the other 49 states. United Healthcare is in about 40 states so what is he talking about?

    Healthcare is trillions and trillions of dollars yet FOX News can only come up with ISIS questions. Propaganda is just as bad in America as it was in NAZI Germany in 1938. Lets destroy America so Blue Cross CEOs – non-profits – can scam us all because they buy the politicians of both political parties, the media and the non-profit think tanks.

    We don’t really discuss the differences between the candidates Obamacare Replacement here at the NCPA because it is off limits. Obamacare Replacement talk is not politically correct. Lets all pray that the conversation is started tonight at the debate because the American people deserve some answers to avoid Socialism.

    • PJohnson says:

      UHC may be in 40 (but not 50) states, but your insurance rate and availability still depends on your zip code. I can’t use someone else’s zip code. So by definition I can’t buy from ANY other area.

      Plus what’s with the NAZI crap? Sure there’s BS maybe even propaganda but nothing like Joseph Goebbels’ twisted hate machine. Get some perspective.

    • John Fembup says:

      “Ted Cruz in Iowa is saying its illegal to buy insurance from one of the other 49 states. United Healthcare is in about 40 states so what is he talking about?”

      That sound was your credibility hitting the floor.

  2. Big Truck Joe says:

    United healthcare expects losses of $400-$500 million a year from its Obamacare exchanges and Humana has also admitted to expected losses in the future, but not exactly how much. Early results show Obamacare is a pending train wreck with many of the private insurers, including Aetna and the Blues, facing huge losses if their competitors don’t stay in to negate the high risk/high cost population who seem to be overepresented in the Obamacare rolls. Ultimately someone will have to come up with a plan B but for now, Obama and his willing accomplices in the press, have done a Goebels-worthy job of convincing the public that Obamacare is working perfectly and we’ve all saved $2500 a year in premiums. No wonder the Republican Party is reticent about speaking of alternatives.

    • Erik says:

      I do believe it was the republicans that sunseted the Risk Corridors which is leading to this issue.

      • Yancey Ward says:

        Uh, no. The corridors were designed in the original version of the ACA which passed with zero Republican votes. The only thing Republicans have done in this regard is insist that the law be administrated as written by Democrats.

  3. Devon Herrick says:

    Big Truck the impending train wreck is derailing U.S. taxpayers. Taxpayers have to pay for the rising cost of coverage because subsidized enrollees’ premiums are capped at a set amount of income. All increases at the margin are borne by taxpayers. The only people who can afford coverage in the Obamacare exchange are either low-income subsidized enrollees or high-cost enrollees for whom any coverage is better than nothing.

  4. Ron Greiner says:

    I wrote the 1st HSA (MSA) the same month FOX News was born, Oct, 1996. I have never seen a show on FOX News dedicated to the tax-free HSA. Dr. Goodman was on but never a good explanation even when McCain and Romney ran against Obama. Now FOX News is censoring the HSA and Republican healthcare reform again here in 2016.

    How can one company, FOX News, owned by a non-American, choose every question that the candidates running for President need to answer? FOX News is scamming the Conservatives in America. FOX News probably made a business decision that involves advertising profits. Of course. It’s always about the money.

    • Erik says:

      “How can one company, FOX News, owned by a non-American, choose every question that the candidates running for President need to answer?

      Now your catching on!

    • PJohnson says:

      Get a grip. FOX news is just one network.

  5. Bob Hertz says:

    The designers of the ACA knew all along that sick people would flock to the exchanges.
    But in theory they would be balanced by millions of young and healthy people, driven by mandates and (I suppose) good citizenship to buy overpriced coverage.
    We are seeing how well that has worked out.

  6. Ron Greiner says:

    FOX News Propaganda, MarketWatch.com reports on debate: The moderators didn’t give them much time to linger on Obamacare, but Cruz, at least, got his digs in. It’s an article of faith among all these Republicans that they want to repeal the health-care law. But a persistent question has been: then what? Cruz’s answer: allow people to buy health insurance across state lines; expand health savings accounts; and de-link health insurance from employment.

    In 2020 the Republicans should host their own Presidential Debates and then they could provide the answers and solutions to America’s problems instead of letting FOX News and their agenda dictate the focus on issues.

    De-Linking health insurance and employment needs to be discussed.

    Maybe we should pass a law that says that Americans should lose their health insurance, auto insurance and home owners insurance when they lose their jobs. Lets do whatever it takes to make sure that people lose their health insurance when Trump fires them because we must at all costs protect the interests of Blue Cross CEOs.

    • Andrew McLeish says:

      Ron you sound like a nut. Ok you hate fox news, no one cares. You say stupid stuff, is it a lame attempt at humor?

    • Barry Carol says:

      I noticed that Cruz didn’t have anything to say about covering the unhealthy and already sick who can’t pass underwriting or, even if they can, will be quoted an unaffordable (for most people) premium. I also think delinking health insurance from employers will be much easier to say than to do as the unions, especially the public sector unions, will vigorously oppose it.

      If you want to delink health insurance from employers, I think you need to allow guaranteed issue if you can show that you had prior coverage with no more than a 63 day gap between the expiration of the employer coverage and the effective date of the newly purchased coverage.

      Only a single payer system would get rid of employer coverage for sure, probably with union support, but I think that would be even worse than what we have now as it would create more problems than it would solve as I’ve noted before.

      • Ron Greiner says:

        Barry, we have to keep adding penalties to people who buy individual medical insurance. We raised the amount to 10% of income before individuals could deduct their health insurance. We should raise that to 50% of income so the unions are happy. Most importantly nobody could go longer than 63 days without insurance because somebody made up that time limit in the past so it must be right. The things you grab a hold of Barry is amazing.

        Just don’t follow the constitution and let freedom happen in America because we need central planners everywhere so we can all be safe.

        Forget those sick people who get terminated off employer-based plans because they took the gamble and lost. People on individual insurance are sick and tired of paying for the union’s tax dodge when they get fired or sick. Let the union dues pay for high risk pools for union workers.

  7. Ron Greiner says:

    Andrew, Obamacare lets employer-based health insurance to be purchased with pre-taxed dollars and everybody else can’t even deduct their health insurance costs so they pay much more. This works out great for large corporations but not for individuals who actually use healthcare.

    Do you really think that America must only focus on the ISIS terrorist problem and not the TRILLIONS of dollars being spent on domestic policy? Terrorists have killed less than 100 people in America since 9/11 and bees and wasps have killed over 700 people.

    We have a Socialist running for President wanting Socialized Medicine and FOX News can’t cough up one question about Obamacare even after the President vetoed REPEAL it just last week?

    I notice Andrew that you don’t have any comment on why FOX News would not have a question but instead just call names. You sound like uninformed sheeple to me.

    zerohedge reports: how the “services” half of the US economy continues to grow, but just which tax, because that is how the Supreme Court defined Obamacare, is responsible for healthcare “spending” amounting to a quarter of the growth in US personal consumption expenditures, almost 100% higher than the second highest spending category which was… Recreational goods and vehicles?


    Consumers are spending more on healthcare!

  8. The Big Ham says:

    Ron Stop picking on Barry.

    we are fighting the same battle we were fighting 20 years ago. We were talking about the high cost of employer based insurance 20 years ago when a family plan was $5,000 a year. now it closer to $20,000 a year. I like Barry’s idea of using current laws. People should have continues coverage or face a waiting period. if you have 18 months of previous coverage without a 63 day laps. you get guarantee issue. if you don’t then your get underwriting and a 6 Month Pre Existing.


    August 22, 1996 — President Clinton’s signing of the Health Insurance Portability and Accountability Act was a bittersweet occasion.

    “Better than nothing” was the sentiment heard frequently among the former health reform staffers. The bill limits preexisting condition exclusions and for the first time makes the regulation of private health insurance a federal responsibility. But it does not extend coverage to the uninsured, and while it prohibits insurance companies from refusing to renew coverage, it sets no limits on what they can charge.

    The true achievement of the bill was underlined by Merrit Kimball of the Alliance for Health Reform, who spoke eloquently of how personal the problem of preexisting conditions had become for her when she was recently diagnosed with breast cancer.

    The great limitations of the bill were underlined by Senator Edward M. Kennedy, who spoke of his continued dedication to extending health insurance coverage to “all Americans,” words he then repeated quietly for emphasis.

    President Clinton celebrated the legislation as an example of what Democrats and Republicans could do when they put the country’s interests first. The signing was a bipartisan event. Also addressing the crowd was Senator Nancy Kassebaum, whom Senator Kennedy introduced as the “kinder and gentler” senator from Kansas. President Clinton paid tribute to Dennis Hastert and other Republican congressmen present for their role in negotiating final passage of the bill. And he gave his wife credit for her hard work on health care reform.

    Would this Congress have passed the Health Insurance Portability and Accountability Act if the previous one had not failed to pass comprehensive health care reform? Perhaps not. The failure to perform of the Democratic Congress in 1994 and the retribution taken by voters at the polls that year served as a stimulus to Republicans and Democrats to get something done on health care reform in 1996. Both Senators Kennedy and Kassebaum also paid tribute to the prodding of Congress by President Clinton in his State of the Union this year to pass the Kennedy-Kassebaum bill.

    Whether Kennedy-Kassebaum will relieve pressure for further health care reform or set a basis for new efforts isn’t clear. After the dust settles, it may become clearer that we still haven’t solved the problem of financing health care for about one of every six Americans.

  9. Ron Greiner says:

    big ham, Kennedy-Kassebaum allowed corporate America to right size their Baby Boomers, because they were getting older and more expensive for wages and health insurance, and smaller employers had to take the sick with no pre-existing. So small business paid for large business one more time.

    We need more and more laws to protect the employer-based employers terminating their sick employees and then the rest of America has to pay for it.

    FOX News, ABC, NBC, CBS, Chicago Tribune, Des Moines Register and on and on only had to go to their own HR Departments and find out what happens to employees’ health insurance when they are terminated from employment. All of these so-called news organizations terminated their own sick employees when they could not fulfill their Eligibility Requirement of working 30 hours per week at the firm’s usual place of business. Yet, there were never any stories about employer-based plans creating the uninsured. Instead, the news organizations twisted it and reported Individual Medical terminated their sick consumers. All a bunch of lies because we do not have a free press in America that reports real news without an agenda.

    Anything that has Kennedy in the name must be bad.

  10. Bob Hertz says:

    Did Ted Cruz really pull out that old chestnut about buying insurance across state lines? Sen Cruz went to Princeton and argued cases before the Supreme Court, I thought he would be smarter than that.

    The State-lines argument had some meaning (good or bad) before the ACA. A young man would be charged $500 a month in a guaranteed issue state like NJ or NY, but his cost was $75 a month in the states that allowed full underwriting.

    But if all states are on guaranteed issue, then the differences are much less. It is true in my agency that the premiums in Wisconsin are 35% more than the premiums in Texas — but that is mainly because of the prices at Wisconsin providers. A Wisconsin resident would not benefit from buying a Texas policy because no one in Wisconsin would accept it.

    See Wendell Potter’s article below:


    • Devon Herrick says:

      I have to wonder what would happen if a Texan were to buy a policy in Iowa that had a narrow network with no out-of-network coverage? I’d think the insurer would love that deal!

    • Ron Greiner says:

      Bob, what are you talking about? When you sign someone up in WI and their child is going to college in MI your provider networks are nationwide with 750,000 doctors right?

      There are nationwide provider networks that the insurance companies use. Maybe you are talking about some WI plan that only sells in Milwaukee or something but I always use nationwide provider networks coupled with a PPO.

      What Ted Cruz did say was de-Linking health insurance and employment which is pretty smart.

  11. Bob Hertz says:

    You are missing the point, Devon. The Iowa policies have Iowa networks. A Texan is not going to fly to Des Moines every time he needs to see a doctor.

    • John Fembup says:

      No, Bob, you are missing the point – a point that has been explained to you so many times you must be deliberately ignoring it.

      The point is that a Texan should be able to buy a polity that contains only the benefit mandates that have been approved in any other state -Iowa, or Alabama, or Idaho, whatever – so long at the policy has been approved in the other state. The Texan’s “home” insurance company would issue the policy. The Texan would use the ho,me insurance company’s networ

      • John Fembup says:

        k, and the actuarial value of the benefits would be based on Texas utilization experience of the home insurer.

        It’s a very simple point.

        The argument against it is not now, and never has been, that a Texan cannot go to Iowa to use the Iowa network.

        However, I think ACA has smoothed out the actual benefit differentials state-to-state so that the netted not so long as ACA remains in force. impact of buying “across state lines” is no longer very meaningful. At least I

        • John Fembup says:

          Damn. Bumpy ride.

          As I was saying, however I think ACA has smoothed out the actual benefit differentials state-to-state so that the net worth of buying across state lines is no longer very meaningful – at least, not so long as ACA remains in force.

          • Barry Carol says:

            John — I think that’s right. The difference in state benefit mandates before the ACA became law affected the scope of coverage which had a potentially significant impact on premiums. The other big factor was that five states had some form of community rating so comparable insurance coverage offered in other states that used underwriting would have been much cheaper for healthy people who could pass it.

      • Bart I says:

        So much for states being the laboratories of democracy.

      • Does Texas have the power to regulate health insurance? I believe it does. Does Congress have the power to take that power away from Texas? I do not believe it does.

        • Ron Greiner says:

          You should read the ACA because the Feds have control over Individual Medical (IM) in the United States and not the states.

          The ACA did not take Short Term Medical (STM) away from the States and they could never do it now.

          • The ACA is unconstitutional.

            • John Fembup says:

              John, the Supreme Court ruled in 1944 that insurance is interstate commerce, over which the feds do have authority. Because of many objections founded on states rights, Congress followed with the McCarran-Ferguson Act in 1945, which generally assigned regulation of insurance to the states, and allowed an exemption for insurance from federal antitrust regulation so long as the states accepted those responsibilities. More history here:


              McCarran-Ferguson meant that, prior to ACA, the states effectively had a captive insurance regulatory market. No individual could purchase an insurance policy unless it contained at least the “mandates” required by the individual’s home state. This of course does not square with any notion of “interstate commerce” and eventually led to demands that people should be able to purchase insurance “across state lines”.

              As a practical matter, the extensive minimum benefits required by ACA (Constitutional or not) have so greatly reduced the impact of variation in state-to-state mandated benefits, that the “across state lines” issue became moot. However, under McCarran-Ferguson, the states still maintain regulatory powers not pre-empted by federal laws, and they still retain the power to tax insurance premiums for policies issued to their residents.

              • The Supreme Court is wrong! Please see http://tinyurl.com/jqr8lwg for a paper I wrote on McCarran-Ferguson.

                • John Fembup says:

                  I’m not taking sides on the Eastern Underwriters decision – or on McCarran-Ferguson, either.

                  I’m just trying to unravel some of the confusion over the “across state lines” thingy (which is moot anyway so long as ACA remains in force.). 😎

                • The big ham says:

                  Great read John . Clearly the fed has over stepped its authority in the 37 states where the federal exchange is running. The mccarrain Ferguson and the grham Leach laws remain the law of the land today and. Unambiguously Define who needs a license to sell or solicite insurance . The fed has over stepped its authority by directly participating in Commerce they are only authorized by the constitution to regulate . Do you have any insight why this has not be litigated?

                  • Well, I believe the status quo to be unconstitutional, but previous comments by others reflect the reality that SCOTUS has demolished the constitutional constraints on the federal government for decades. So, my pleading for the Constitution in 2016 is academic.

            • The big ham says:

              I agree. The federal gov is selling and soliciting insurance plans in 37 states on behalf of the insurance companies with out a state license. They are directly participating in the commerce they are only authorized by the constitution to regulate. However the surer court has failed to recognize nothing in the ACA exempts CMS for requiring a state license to sell solicited or negotiate insurqnce.

    • Al says:

      Bob, see my comment that got jumbled up in a number of others.

  12. Bob Hertz says:

    Note to Barry:

    I am puzzled by your second paragraph, where you propose guaranteed issue for any one who has continuous coverage.

    I have read this elsewhere in the Republican alternatives to the ACA.

    I know that there is some substance behind this idea, but so far I just do not grab it. This can certainly be my error.

    Anyways, it seems to me that persons who have a chronic condition have always been (and will always be) damned careful not to have a break in coverage. These are the persons who sign up for COBRA and who were first in line to get onto the Exchange.

    The result it seems to me that insurers will have almost as many sick people under the continuous coverage rules as they have today under pure guaranteed issue. The slow death spiral we see today will proceed just as if this Republican alternative had never happened.

    • Bart I says:

      One thing missing from this is that it needs to be continuous coverage under a similar guaranteed issue plan.

      Coverage under a low cost STM or other underwritten plan (assuming one is allowed) shouldn’t count as creditable coverage.

      • I think you are getting my drift: The type of continuous coverage within the individual market which some Republicans prefer would necessarily lead to a very heavily regulated market – maybe more regulated than Obamacare.

  13. Barry Carol says:

    Bob – The continuous coverage creating eligibility for guaranteed issue was intended to apply to people who lost employer coverage because they got laid off or were too sick to work any longer or their employer went bankrupt or stopped offering coverage. Even if they pick up COBRA, that only lasts for 18 months. Then what?

    As for the ACA, I think the structure would have worked better if insurers were allowed to use a maximum age rating band of 6 to 1 instead of 3 to 1. That would have ensured that younger people, as a group, would not pay a premium greater than their collective group actuarial risk justified. It would also have been helpful if the size of the penalty for not purchasing insurance were closer to the cost of the least expensive plan in the marketplace. Finally, eligibility for subsidies should not have been abruptly cut off at incomes above 400% of the FPL. There should have been no income ceiling at all. The 6 to 1 age rating band and no ceiling for subsidy eligibility would have certainly added to the cost of subsidies which politicians weren’t willing to fund but I think it would have addressed the issues of both overcharging young people and not making subsidies available to people with incomes slightly above the cutoff, especially if they’re older and/or need family coverage.

    Since this is a presidential election year, now is the time to present ideas to replace the ACA if republicans are so determined to repeal it. So far, I haven’t been very impressed with what I’ve heard. Any replacement worthy of the name has to have an effective mechanism for covering the unhealthy and the already sick and there have to be subsidies especially to help lower income people afford coverage and, ideally, to cap the cost of health insurance premiums at 10% of income with no income ceiling for subsidy eligibility. Adequately funded high risk pools would be one potential approach for covering the uninsurable but the experience in the states that had them between 1977 and 2010 was not very good to put it mildly.

    It’s not good enough to just re-enable healthy people, especially young, healthy people to buy cheap coverage. You can’t have guaranteed issue without a mandate to purchase coverage. Health savings accounts are grossly oversold, in my opinion, and most of the lower half of the income distribution probably can’t afford to contribute much, if anything, to them in the first place. Extending tax deductibility to people who buy their insurance outside of an employer would probably just lower the cost for people who would have bought insurance anyway and the loss of tax revenue would need to be made up somewhere else unless we just want to put yet another benefit on the national credit card and stick our kids and grandkids with the bill.

    • Bart I says:

      One small point– if the employer goes out of business or drops its health coverage for any other reason, COBRA eligibility ends immediately. But then HIPAA continuation coverage kicks in, or used to. Not sure about post-ACA.

  14. Barry Carol says:

    Bob — To follow up on my prior comment, additional ways that one could lose health insurance coverage that don’t include getting sick are retirement but not yet being old enough for Medicare or having a spouse that hasn’t reached Medicare age yet and maybe even still having children in college or younger that still need to be covered. Also, the carrier may go bankrupt or decide to exit the market. We’ve seen about half of the ACA co-ops go broke and you noted in the past that carriers enter and exit markets all the time.

    So, getting laid off, the employer going bankrupt or deciding to no longer offer health insurance, the carrier going out of business or exiting the market and not being old enough for Medicare upon retirement are all circumstances that would make someone need a new health insurance policy without having anything to do with being sick or having gotten sick recently.

    If people knew they would be subject to underwriting if they had more than a 63 day lapse in coverage and, as Big Ham suggested, would have a pre-ex exclusion at least for a limited time like six months, it would provide a strong incentive to sign up for coverage.

    There would still need to be a mechanism to provide subsidies for people who need help paying for coverage along with a strict income, debt and asset verification process perhaps similar to documentation requirements that lenders demand before they will give you a mortgage. If you are caught hiding income or assets to qualify for a subsidy that you’re not eligible for or a larger one than you’re eligible for, there needs to be adverse consequences.

  15. Bob Hertz says:

    Note to Ron and John F — you are correct that a PPO plan with a national network does enable a person to somewhat buy a plan across state lines.

    However I spent a fair amount of time in the last two months helping clients on Healthcare.gov across the US. In a few locales there were no PPO plans any more, and in almost every locale the most popular plans were dinky little local HMO’s.
    I suspect this is where the ACA is going in the individual market.

    Note to all:

    Are any of the Republicans proposing a return to health insurance underwriting? Based on my reading, the only mandate that really raises premiums a lot is guaranteed issue. Unless that feature is modified, I am skeptical that Republicans can fix the ACA.

    • John Fembup says:

      Well, all this is moot but you are still not getting it.

      The concept does not depend in any way on a PPO plan with a national network.

      Very simply, you would be able to buy a benefits package approved for sale in any other state. You would be buying that benefits package from an insurer in your own state. You would not be buying the network of an insurer in another state. You would be buying the network of the insurer in your home state. It’s that simple.

      The concept is moot because ACA has mostly leveled out the mandated benefit differences among states.

  16. Barry Carol says:

    Ron – I would like to draw on your expertise again. After you read my comment below, you can tell me where I’m wrong.

    I’ve read that, on average, guaranteed issue roughly doubles the cost of health insurance for a given scope of coverage, deductible, coinsurance and out-of-pocket maximum liability as compared to underwriting. I’ve also read that Medicare beneficiaries, on average, consume about twice as much healthcare per person than the under age 65 population does.

    Medicare currently spends roughly $12,000 per person including some offsets from beneficiary premiums and IRMAA surcharges. It’s also worth noting that there is quite a bit that Medicare doesn’t cover and the program already has low administrative costs if you set the fraud issue aside for the moment. That means that we would have to spend an average of $6,000 per person to provide the same coverage to the rest of the population at Medicare reimbursement rates which would cost a total of $1.56 trillion for the roundly 260 million people who don’t have Medicare coverage.

    Now, if we allowed medical underwriting, healthy people could buy coverage for an average of $3,000 assuming it would be half the cost of the guaranteed issue approach. If we use a 6 to 1 maximum age rating band, young people would pay $1,000 per year and older folks would pay $6,000 for those who can pass underwriting. Total premiums at an average of $3,000 per person would produce revenue of $585 billion.

    You told me in the past that if we got rid of employer coverage (third party payer), as many as 30% of those folks would not pass underwriting. Let’s call it 25% for the sake of argument. Since we raised $585 billion from the 195 million people who could pass underwriting, we would still need to raise $975 billion from the 65 million who can’t pass in order to have enough money to pay claims and cover administrative costs. That works out to $15,000 per person from the high risk group and with a 6 to 1 age rating band, the premium range would be from $5,000 for the younger people to $30,000 for the older folks.

    If we provide subsidies to limit any one person’s premium to no more than 10% of their pretax income from all sources, we would probably need to find $500-$700 billion per year to cover the cost of the subsidies which would be two to three times the estimated cost of the current employer provided health insurance tax preference in foregone federal tax revenue. Where would the money come from and where am I wrong? At the end of the day, the money raised from insurance premiums has to be sufficient to cover medical claims, administrative costs and profit assuming we still have for profit insurers in the marketplace. Even the non-profits have to make at least a modest profit margin to stay in business.

  17. Ron Greiner says:


    That is a lot of assuming and you don’t take into consideration incentives. But, you wrote, “That works out to $15,000 per person from the high risk group and with a 6 to 1 age rating band, the premium range would be from $5,000 for the younger people to $30,000 for the older folks.” I think that is too high for the high risk pool.

    Also, HMOs are a lot cheaper than PPOs so what kind of coverage would these people be getting? If it’s HMOs then savings could be produced by declining procedures like they do now.

    Are you thinking about this for the Bernie Sander’s campaign?

    • Barry Carol says:

      Ron — Thanks and yes, I am thinking about it in the context of what Bernie Sanders proposed. I think his cost estimate of $1.38 billion in the first year is too low, I think there is a good chance that the tax increases he proposes won’t raise as much money as he thinks, and utilization could rise among the under age 65 population as out-of-pocket cost exposure declines and they are forced to pay taxes to finance coverage whether they want it or not.

      I’ve also never heard any hospital say that it could make ends meet by accepting Medicare rates from all comers even if there were no uncompensated care. Then there is the issue of more fraud which is a whole separate discussion. In NJ at least, our hospitals claim that Medicare only reimburses at about 91% of costs on average and Medicaid at far less than that.

      Needless to say, I don’t support the direction he is trying to take us. People like choice and private insurers are more likely to provide choice than one size fits all Medicare. We’re also more likely to get innovation on the payer side with multiple payers in the market.

  18. Barry Carol says:

    Correction: Sanders’ cost estimate is $1.38 trillion in the first year of his Medicare for all plan, not billion.

  19. Bob Hertz says:

    My response has in fact been consistent, and all I have tried to say is that most benefit mandates (outside of guaranteed issue) do not raise rates very much.

    Therefore, going across state lines to avoid a maternity or mental health benefit might not have saved much money.

    Here is backing for this view from a former Bush official named Keith Hennessey:


    and here is a key paragraph from Hennessey:

    How much? I cannot say precisely, because of the differences between CEA studied State mandates and because there are other interactive effects in this bill. But clearly these mandates will increase premiums, and if the numbers are comparable, the neighborhood is quite expensive: +4-5% higher premiums for another 10 benefit mandates, +20-27% for community rating, and New Jersey’s guaranteed issue is associated with 94% higher premiums compared to a similar State without guaranteed issue. Those are potentially astronomical premium increases that would make the problems the President describes far worse than under current law

    • John Fembup says:

      Well, Bob, (long comment, sorry) this discussion is not all that practical because ACA makes moot the whole concept of cross-state buying of insurance.

      You have argued much more than modest cost of most benefit mandates, You argued that a Texan would never fly to Des Moines to get medical care. You also argued – or at least suggested – that an insurer with a national PPO network must somehow be involved. I still say, neither of those arguments is relevant.

      Yes most state benefit mandates carry modest cost but that misses the point. It’s not the modest cost of any particular mandate that matters – it’s the cumulative cost of all of them that matters. Yes, for sure, community rating and guaranteed issue have much larger impact than any one benefit mandate. But some states have large numbers of benefit mandates: 40, 50, 60, or more. Their cumulative effect becomes material. I think you are too quick to dismiss that point, and perhaps your Hennessey source is also too quick.

      The Council on Affordable Health Insurance (CAHI) has for years published an annual study of state benefit mandates. In 2010- the year ACA became effective – CAHI reported 2,156 mandates among the 50 states and D.C.


      In Connecticut, where I live, there were 59 benefit mandates in 2010. Three states had even more. Idaho had the fewest (13) and Alabama next fewest (19). Using the CAHI data for 2010, I compared the approximate cost difference due only to state mandates, for a policy issued in Connecticut ve. one issued in Alabama. The result surprised even me.

      The cost difference ranged from a low-end estimate of 20% to a high-end estimate of 51%. Again this is based on the CAHI data.

      In other words, a family policy costing $2,000 per month in Connecticut, might cost between $1,000 and $1,600 per month in Alabama. That is not trivial. It’s very significant. Except, of course, no resident of Connecticut can legally buy a policy that contains only the Alabama benefit mandates,

      The benefit types you mention – maternity and mental health – are mandated in both states. It’s the cumulative effect of other mandated benefits that accounts for this startling difference,

      Keep in mind I’m comparing benefits that are mandated. If I could have bought a policy with Alabama mandates, and I wished to keep Connecticut mandated benefit I really wanted, I could have chosen to buy the rider and pay the additional premium for that benefit. The point is, I would have the choice. I would not be obliged as a captive of my state’s regulatory monopoly, to buy only what my legislature told me to buy. Choice is good, is it not? And in this case, choice could have saved a lot of money.

      So cross-state purchase of insurance was never trivial. But now it’s moot. That’s because of the extensive minimum benefits required by ACA. Those minimum benefits have raised the cost for everyone and have precluded any possible choice that could have allowed us to save premiums If we don’t like what our betters in Washington have decided is good for us, well, we can pay the tax penalty. Lovely, isn’t it?

      • Ron Greiner says:

        Your comments are “MOOT”. It is interesting you pick Alabama which has a giant monopoly of Blue Cross of 95% market share. Did you ever consider that Monopolies will mess with the consumers cost as much as state mandates? Didn’t CAHI explain that to you?

  20. Bob Hertz says:

    John, thanks for the CAHI material. I also saw the differences between say, Connecticut and Alabama, but I thought the differences were due mainly to expensive hospitals and clinics in Connecticut that demanded higher fees from insurers……plus higher salaries in Connecticut for everyone connected to health care, including the insurers themselves.
    But maybe not, as you suggest.

    • Barry Carol says:

      Bob – I think both you and John are right. Even under the ACA, an identical Bronze or Silver plan for people of the same age and smoking status could easily vary in price by 100% or more because of regional differences in healthcare costs, especially for salaries and benefits, as well as expected utilization. For example, when the exchanges first started up in 2014, a Silver level policy in NJ cost about twice as much as an identical or at least similar policy in NC. Costs can also vary significantly within a state because of the same factors. Healthcare costs in NYC are much higher than they are Upstate. In Miami, FL, medical practice patterns are more aggressive than they are in Northern FL and that doesn’t even take into account the fraud factor which Miami is famous for.

      That all said it would be interesting to see individual prices for each benefit within a policy. How much for complete hospital coverage, prescription drugs (formularies will vary), physician visits, maternity benefits, IVF, alcohol and substance abuse, mental health benefits, etc.? In theory, if there were no required essential benefits package, customers could choose what they wanted from the menu as well as their deductible, coinsurance amounts and out-of-pocket maximum liability. It would be more cumbersome for brokers or navigators to help guide customers through all those choices and that cost would have to be built into the broker commission. I suspect, though, that each individual benefit offered would vary in price both among states and within states from one county to another.

      Similarly, identical or nearly identical houses and condos vary widely in price around the country for a variety of reasons including differences in the cost of land and time to get building permits as well as numerous other factors.

      I would also not that in Switzerland, identical coverage costs up to twice as much in the cantons (like our states) with higher living costs than in the lower cost cantons.

  21. Bob Hertz says:

    Barry, I liked your post about the cost of subsidizing everyone including those in poor health.

    What your statements reflect (though maybe not intentionally) is the under-rated importance of employer paid insurance.

    This institution (if you will) has become kind of a whipping boy for the flaws and inequalities of American health care, and the tax-free status of $1 trillion or so in premiums is a huge honey-pot for many schemes of health care reform.

    However, employer payments however imperfect are a real ballast in the current system, and I think we should be very cautious about disrupting them.

    In your post, what is left unsaid is that group insurance covers a vast number of unhealthy persons…since virtually all large employers have a guaranteed issue package for full timers. Sending those persons out into the individual market is a very costly process.

    In another context, the large employers who still cover entire families play a huge hidden role in the labor market. In many cases, a spouse can take a job selling real estate, insurance, fill in the blank, and not need health insurance because they get coverage from their spouse’s generous employer.

    This is not perfect social policy, that is not my point.
    My point is that this enables a lot of small marginal companies to stay in business, because they can hire those spouses and not need to provide health insurance for them.

    All forms of single payer would tax each and every firm.
    This may be more fair, but I think it would be very disruptive to the small business economy.

    Finally, I suspect that large employer-insurance policies pay higher fees to providers than Medicare or Medicaid or small HMO’s. If so, then large employers are once again a ballast of the current system.

    • Barry Carol says:

      Bob — All good points. Every proposed significant change to the current health insurance system from replacing employer coverage with age based tax credits to single payer involves tradeoffs that would be unpopular with a very large segment of the population. Unions won’t like age based tax credits and healthy people won’t like paying hefty new taxes to finance a single payer system.

    • John Fembup says:

      “group insurance covers a vast number of unhealthy persons…since virtually all large employers have a guaranteed issue package for full timers”

      It’s not really so “vast” Bob. Remember there is a selection effect in the hiring process itself. New hires are judged healthy enough to work. The incidence of disease or non-occupational injury among employed persons does not suddenly become greater after the worker is hired – I.E., their state of health is not dependent their job or their group coverage. I think it’s unlikely that groups of employed persons generally contain more people in poor health than groups of unemployed persons.

      “In many cases, a spouse can take a job . . . and not need health insurance because they get coverage from their spouse’s generous employer.”

      Remember that this form of double coverage has been shrinking for more than 10 years. Eligibility rules for a majority of large companies today (the ones that buy the most group insurance) exclude spouses who are eligible for group insurance through their own place of work.

      I think you are correct that insurers and insurers acting as TPAs reimburse providers more than Medicare and Medicaid. In fact, since the 1970s providers have complained that government programs don’t cover their costs. One result of the government program underpayments has been the presence of a so-called “cost-shift” in which the providers rely on higher private insurance reimbursements to cover the government program underoayments. The actuarial firm Milliman says this cost shift from government to private payers is growing. The question then becomes: when private insurance reimbursements disappear, what happens to government reimbursements? Will providers be paid even less relative to their costs?

      Btw, once again we trip over the fundamental problem, which is the cost of delivering medical care.

  22. Al says:

    “A Texan is not going to fly to Des Moines every time he needs to see a doctor.”

    Bob, how do you think those in NYC and the surrounding states get their care in states like Florida (both before and since the ACA). They have NY insurance and do not need to fly back to NY. How do they do it? Likewise many Floridians return to NY or elsewhere for a large part of the year. How do they get their care?

    Additionally we know the cost of insurance from different states ranges considerably far more than the differentials seen under Medicare. That tells us that ridding ourselves of expensive mandates (regulations) would go a long way to reduce premiums. Admittedly that would create other problems, but our first concern should be to provide insurance with premiums as low as possible so people voluntarily purchase it and have catastrophic care when catastrophe strikes.