Will the Number of Uninsured Rise Under ObamaCare?
It is cruelly ironic, but the massive law that was enacted to solve the problem of the uninsured in America is more likely to worsen it. This would be true even if the program is perfectly implemented and all the provisions come online on time and within budget.
How could this be? It is a multistep process. Stay with me for a second.
The more things change,
The more they stay the same.
Medicaid
First, the simplest and most direct form of expanding coverage — Medicaid expansion — is likely to have very little effect. I’m not talking here of the states that refuse to do it after the Supreme Court made it optional, but of the entire program.
Remember that one-third of the uninsured have always been eligible for Medicaid and/or SCHIP coverage but don’t bother to sign up. Actually, it is worse than that. A few years ago, William Sommers wrote in Health Affairs that one-third of all uninsured children had been enrolled in Medicaid or SCHIP within the previous year but their parents found so little of value that they didn’t bother to re-enroll them.
Nothing about ObamaCare’s Medicaid expansion is likely to change this dynamic. Yes, there will be more advertising, and yes a larger number of people will be eligible, but quite of a few of those newly eligible people are already getting coverage on the job, so any expansion of enrollment is likely to be a crowd-out of private insurance. One of ObamaCare’s architects, Jonathan Gruber, has done extensive research on this subject and concluded that as much as 60% of the enrollment in expanded public programs is from people who had been privately insured. No doubt this effect grows bigger the higher up the income scale you go.
By the way, a recent example of this crowd-out phenomenon is revealed in a new study by the Robert Wood Johnson-funded State Health Access Data Assistance Center (SHADAC). Much has been made of the numbers of adult “children” covered under ObamaCare’s mandate allowing people up to age 26 to stay on their parent’s policies. This study shows that the number of such people covered as dependents on employer plans rose from 30.2% of the population group in 2009 to 36.5% in 2011. Sounds like a great success until you realize that the percentage of that age group that had employer coverage in their own names dropped from 21.8% in 2009 to 16.5% in 2011. So, virtually all of the people now covered as dependents were previously covered on their own.
Less studied is the stark reality that many of the people who might be eligible for Medicaid are simply too dysfunctional to enroll. They might be functionally illiterate, drug addicted, mentally ill, outlaws, or in the underground economy and not want to bring attention to themselves. They can’t understand an insurance contract or make and keep appointments for services, but they know where the doctors are 24/7 — the hospital emergency department. When these people have a health problem they don’t need insurance coverage. They need direct care.
Here is where the Supreme Court decision made a very big difference. It said there is nothing illegal about not enrolling in coverage; it simply exposes you to a tax. This removes many of the tools state and local government might have used to compel enrollment. All manner of government services might have been denied to people who do not have proof of insurance — school admission, public housing eligibility, fishing licenses, food stamps, job training, day care — all might have been denied to lawbreakers. But the Supreme Court shut down that possibility. So for low-income people there will be as little compulsion under ObamaCare as there was before and people will continue to behave as they always have.
We can’t calculate what the net effect of all this will be. At best Medicaid expansion will have only modest impact on reducing the numbers of uninsured. But it is equally likely to have no effect at all.
Employment-Based Coverage
Next up is the mind-boggling assumption that employers will continue to provide coverage as they have in the past. No one actually believes this.
In fact, employers have been dropping coverage for at least the past ten years. There is no reason to think this will not continue and may dramatically accelerate under ObamaCare.
The study by the State Health Access Data Assistance Center (SHADAC) cited above finds that the nonelderly population with employer-sponsored coverage decreased from 69.7% of the population in 1999/2000 to 59.2% in 2010/2011. This is because fewer employers offer coverage, and of those that do, fewer employees accept the coverage that is offered. The drop-off is particularly acute for smaller firms with fewer than 50 employees. Only 37.5% of these companies now offer coverage, down from 47.2% ten years earlier.
Once ObamaCare kicks in, many more employers will drop coverage. The only dispute is over how many.
Two years ago the well-respected McKinsey Company conducted a survey of employers and found that 30% said they will “definitely or probably” drop their coverage. The survey was criticized by Obama’s supporters because it wasn’t an economic analysis. Odd, since the same folks seem to live or die according to survey results that are far less rigorous. Avik Roy noted in Forbes that the actual results were even worse than it seemed at first blush. He wrote that the more respondents knew about the law and the more directly involved they were in decision-making, the more likely they were to want to drop their coverage −
…primary decision makers were significantly more likely to drop employee health benefits: 36.5% of primary decision makers said they “definitely or probably” would drop benefits, compared to 22.4% of those who simply had some influence over the decision.
More recently, Douglas Holtz-Eakin, former CBO Director and currently with the American Action Forum, published a study with the economic features the McKinsey critics apparently prefer. He estimated that 35 million American workers will lose their coverage. He assumes most of these will go to the exchanges for subsidized coverage (more on this below), costing the federal treasury an additional $1.4 trillion over ten years.
The Congressional Budget Office is more constrained, but even they have upped their estimate of the number of workers losing coverage from a mere 3 million a few years ago to 7 million just last month.
The CBO number is almost certainly a gross under-estimate. CBO’s ability to predict the future has long been constrained by two things:
- It is required to assume that current law will be in effect in the future. So, for example, its budget predictions always assume that the SGR cuts in physician payments will actually occur. But that never happens, so the predictions are never accurate.
- It tends to use “static scoring,” which means it assumes that current behavior will be unchanged by new incentives. In this case it issued a 30-page justification for its estimate. As an example, part of that report said −
The fact that many firms currently offer health insurance coverage to their workers despite the high cost of premiums and rapid growth in those premiums for many years shows that many firms continue to find health insurance coverage to be a worthwhile element of their compensation packages. If firms could have attracted employees more cheaply by dropping health benefits and adding wages or other benefits that cost less, then they would have done so.
Good grief! This is about as shallow as you can get. Firms have been offering coverage despite the high cost because there has been no viable alternative, and they feel an obligation to ensure their workers can get coverage. The whole point of ObamaCare is to provide an alternative! Companies will now feel free to drop coverage in the belief that workers will now be able to get good coverage through the exchanges.
On top of actually dropping coverage, no one is estimating the effects of employers who convert full-time workers to part time, reduce the size of the workforce to stay under the mandate, out-source jobs to other companies or even other countries, or enter employee-sharing arrangements with other companies. There is no data for these developments (so they are invisible to policy researchers) but local daily newspapers are awash in stories about companies doing exactly this.
Whether it is McKinsey’s 50 million or so, Holtz-Eakin’s 35 million, or CBO’s 7 million, there is no denying that some large number of workers will no longer have employer-based coverage and will be left to their own devices.
Why should this be the least bit surprising? Kaiser Family Foundation’s 2012 employer benefits survey found that on average employer coverage costs $15,745 per family, of which the employer pays $11,429 (for single coverage it is $5,615, with the employer paying $4,664.) Holtz-Eakin finds that the federal subsidy for a $15,000 plan in the exchange will range from $14,176 for people with incomes of 133% to $2,935 for people with incomes at 400% of poverty ($94,800 for a family of four). For all income groups below 250% of poverty ($59,000), the federal subsidy is far greater than the employer subsidy is.
Employers will be doing their workers a favor if they stop offering coverage, pay the $2,000 fine, and send workers into the exchanges. This is especially true if the company pays out the savings in the form of higher wages. Holtz-Eakin doesn’t even consider the enormous savings for the company if they no longer have to pay the Human Resources cost of finding and negotiating coverage, enrolling workers, explaining the coverage, answering questions, and intervening when there is a problem with a claim. Any CFO worthy of the title would take that trade in a heartbeat.
The Exchanges
So, the Medicaid expansion will make very little difference and some 35 million (perhaps more) people will lose their employment-based coverage. What is left to pick up the pieces? The much-vaunted “health insurance exchanges” (now referred to as “marketplaces” by the federal government). How will that work out?
Never mind for now the implementation problems (which are massive). Let’s assume for the moment that they work as planned — they are up and running by October of this year, the hundreds of thousands of newly hired navigators” are competent and well-trained, plenty of insurance companies are participating, and the data-sharing arrangements between employers, state Medicaid programs, and the IRS all work flawlessly. With all of this behind us, what do we have?
Well, first we have the underlying assumption that people really want to have insurance coverage. That is the whole point of this exercise, after all — there are so many uninsured, not because they don’t want it, but because they are deprived of it for one reason or another. One might think somebody would have tested that premise before enacting this boondoggle.
Oops! Three years after enactment, CMS decided to finally ask the question: just who are these poor wretched uninsured people and what are they looking for?
Turns out 92% of them can be divided into three segments:
- The biggest cluster (47.8% of all the uninsured) are “healthy and young.” They are not much motivated to enroll and they take their health for granted.
- The next largest group (28.9%) are “sick, active and worried.” These tend to be older and are pretty good candidates for coverage.
- Finally we have the “passive and unengaged” group (15.3%). I’ve tried to bring some attention to this population (see here). These folks tend to be older and have poor literacy skills.
All of these groups say cost is the main reason they are uninsured, but I expect that is just a throw away excuse. I doubt many of them have the slightest idea what insurance costs. They aren’t interested enough to even look into it.
At best, two-thirds of these people will be hard to reach and even harder to sell (as any insurance agent could have told you years ago.) They are uninsured, not because they are deprived, but because they do not see value in it. The time to do this research would have been before passing the law, not afterwards. That way the law could have been tailored to meet their needs, instead of assuming they will comply with whatever Nancy Pelosi crams down their throats. So out of the 50 million or so currently uninsured we might get 15 million who sign up for coverage.
But what about the newly uninsured, whose employers no longer will offer coverage? Most of these people have been passive recipients of whatever coverage their employers offered. They never had to do anything to secure coverage. We have written about this population before.
For the most part they are very much like their uninsured brethren except they happened to have a job that provided coverage. Once again, one-third may be motivated enough to seek coverage on the exchange, the rest won’t bother, knowing they can always get coverage later on when they need it. Meanwhile, they can save a whole lot of money that would otherwise go the premiums. So, out of 35 million newly uninsured possibly 12 million will get coverage on the exchanges.
But what about the mandate? Won’t that persuade people to get coverage even if they don’t particularly want it? Hardly. The mandate literally has no teeth. The only enforcement mechanism available to the IRS is to confiscate income tax refunds. The vast majority of the uninsured are lower-income (so they pay no federal taxes) and the rest can easily adjust their withholding at the start of the year to avoid sending excess money to the Treasury. No refund = no penalty.
So what are we left with? Medicaid expansion that will enroll few people and most of those will be people who were previously covered (crowd-out). Of the 50 million currently uninsured, possibly 15 million will get new coverage. But these will be offset by the 23 million who lose their employer coverage and don’t bother signing up for exchange coverage. Net result — 8 million more uninsured than before ObamaCare was enacted.
Great post, Greg!
Excellent piece, Greg. As a longtime insurance agent, and a student of the phenonemon we call PPACA, I think your observations are spot on when viewed from the stated goals of this law. Sadly, I don’t believe that was its true intent: I think its true purpose was to create such chaos in the market, such anger at the “big, bad insurance companies”, and specifically at the agents (who remain the only street-level resources available for most folks) that society will scream, “We want single-payor”. And then everyone loses.
No, this law had little to do with access to medical resources. Instead, I would suggest that it’s true purpose was the furtherance of an entitlement society. When viewed from that perspective, it’s a masterpiece of political manipulation and is well on its way to achieving its goal.
Good post and I have been stating the obvious to my circle of people and clients. PPACA will certainly make the insurance market more complex driving out a lot of people for fear of the regulations and complexities. The other component is that if employees are not buying coverage at the employer for a nominal rate what makes you think they are going to pay more for coverage. Most employees that make between 24k and 35k will likely opt out and pay the tax. They want to spend it at the local watering hole or whatever the interest may be.
I compare PPACA to a lot of nothing. it does not really help that many people.
I was in a room filled with about 75 agents and brokers and we asked if there was any clients that were eligible for the small business tax credit. Out of about 1000 clients only 1 became eligible out of 1000. Just non sense.
I do not think the employer market will change all that much because there still are incentives to provide the coverage. Coverage and benefits will change but I have talked to all my employers and they plan on keeping ER based coverage.
John, Great article! You were more than nice not to point out that the whole point of Obamacare was not to get more people covered, but for political advantage. Never mind it won’t work, it buys us votes! The more people on the gov’t dime, the more they vote for BIG government!
Mike – I totally agree, but will add that I had 2 employers who were eligible for the tax credit.
This post is too long. Also, I can’t read above a 6th grade level.
How embarrassing. So the access/takeup to health insurance has a good chance of being reduced and we know–as even the CBO has said this–that premium prices will rise. Thus we have reform that accomplishes just the opposite of its two goals which were to improve access and lower costs: anti-reform.
Interesting idea. I think Greg may be right.
Greg,
Where did the “23 million losing their employer-based coverage.” I saw lots of numbers being cited earlier, so how did you decide on 23 million?
Greg,
Sorry, that should have read: Where did the “23 million losing their employer-based coverage” come from? I saw lots of numbers being cited earlier, so how did you decide on 23 million?
David,
Start with Holtz-Eakins’ 35 million losing employer-based coverage, then apply the one-third standard of people who are motivated to get coverage from the CMS survey, you get @23 million who remain uninsured from the employer market. It’s rough but indicates the range of the problem.
This is certainly concerning as the whole purpose behind the law was to do the opposite.
Very informative post, although quite concerning and makes me wonder how this will go in effect and resonate with the public in the near future.
If we can see this coming, if we can foresee the call for single-payer, we need to be ready with a well-thought-out “comprehensive” market-oriented approach to directly oppose single-payer.
Absolutely, Bob. The key will be crafting a plan which addresses the real issues with real solutions without creating any more chaos than already exists. The current administration has already proven that this exceeds their capabilities and does not coincide with their goals, so I’d expect cooperation will be elusive.
At this point I feel that true “repeal” of this monster is unrealistic, but a number of key improvements are obvious and can be addressed. What ideas do you have?
@Brian I’ve got an approach that can be found by clicking on my name above.
I’m sure that John Goodman and others would have suggestions for improving it. John himself has proposed many excellent fixes to the current system.
Perhaps when the time is right there should be a small, working conference.
For the low income, seizing the income tax refund can be quite a penalty because of tax credits. I am low income (though not for long, I hope). Because of the EIC, my federal tax rate was negative this year. Even if someone had no withholding, the IRS would still have their government subsidy to take away. Since those subsidies can be substantial, the mandate still has teeth.
I suppose it would be a matter for the courts to decide, if the EIC or mandate takes precedent. I’m willing to bet that the EIC come out on top. Or perhaps not, he’s not worried about voters anymore, and Dr. Goodman and Greg have both argued that it’s entirely possible people will start fiddling around with their statements so that they can qualify for the exchanges.
Greg,
Thanks for explaining that. Great post, btw!
Eric, interesting observation, but I’m not sure it is true. I don’t think there is any penalty assessed to people not earning enough to actually pay income taxes.
It should also be mentioned that much of the newly Medicaid eligible population are childless adults. Parents with children are far more likely to enroll than those without.
Thanks for taking the time and research you put into this! At this point, there is not an employer with less then 400 employee who should continue to provide benefits to thier employees. Jan 1, 2014 they should all cancel and give thier employees a clear understanding of the subsidy they have paid for thier employees and now the subsidy the federal goverment will pay for them.
Eric and Greg raise an interesting question and i’m not sure what the answer is. In general, if you do not owe enough to pay income taxes, the mandate does not apply to you. But what about EITC folks who are getting a negative income tax?
Does anybody know if their refund can be withheld?
One minor point to add to this is that the biggest “healthy and young” cluster are given even more motivation to risk going without insurance since Obamacare drive up the rates for younger people:
https://sites.google.com/a/politicsdebunked.com/home/article-list/healthcare
“Insurers usually charged 6-7 times as much for older people but starting in 2014 they can only charge 3 times as much which is estimated to increase the cost to the young by 17%, or 45% according another source. ”
(the page has hyperlinks to the sources for those figures).
You guys at NCPA need to make up your mind. First, obamacare is terrible because all those newly covered will flood the system and reduce access. Now, it will reduce coverage so I guess the access problem goes away.
John and Greg:
This post is so important that I would love to see you package it in a form that will actually reach those in Congress who perpetrated the law. 2014 may see the loss of 6 Democrats in the Senate. The effects of Obamacare are being seen every day, and the ire of the public is increasing. But there is a fatigue syndrome setting it–so much low energy fuss, but it occurs every day. A serious explosion is needed.
Softening toward Obamacare is now surfacing in unions, which are finally figuring out that it will cost them more.
May I suggest that you contact Wired magazine and ask their graphics department to depict this information in their excellent original charts. We all know the Senate and House members do not read; make it a picture and they may just get it.
For those who want repeal and replace, just ask for a short list of changes;
exempt individual premiums from taxes; permit purchase across state lines;
lift any limits on the size of health savings accounts and explicitly permit pooling of HSA funds in credit union-type organizations. That will start the ball rolling. It is not necessary to match and revise all the elements of Obamacare; it is enough to liberate the market, watch the changes, then reinforce the best.
The point about the costs to employers of administering a health insurance benefit is a valid one. Individual insurance plans will have that burden and thus raise their rates. Eventually, those with effective social media can do the work, but as Greg points out, there are inevitably those who are too incompetenet to do it right.
Wonder when someone will point out that one of the solutions is to under-right a healthcare delivery solution that accepts anyone and does not require them to have insurance. That’s called Community Health Centers, and there are thousands of them, but not yet enough.
Greg–thank you for these facts. Do get this out in a visual form.
Cheers–
Wanda J. Jones, President
New Century Healthcare Institute
San Francisco
When the trainwreck comes in Jan 2014, it might be rather easy to seque into something rather elegant:
1. Leave the exchanges. Allow across state line marketing. Insurers pay for exchanges pro rata.
Regulate exhanges minimially–esp. as to truth in advertising only, e.g. actuarial values. Allow insurers to sell any product.
2. Allow state medicaid plans and employers to purchase from exchanges as well as individuals.
3. Means tested defined contribution given to poor folks.
4. All health insurance and HSAs are tax deductible up to some Cadillac limit.
Check out benefitter.com… calculates for employers whether they should drop coverage, even while making employees whole
Ouch! I’m already starting to see the effects of Obamacare. The last time I went to my primary care provider, I was told that I had to drive to the lab to have my blood drawn because Medicare no longer pays physicians to draw blood. So, besides being very sick and barely able to drive, I was forced to drive myself to a lab, wait for an hour just to have blood drawn because Medicare no longer pays doctors to draw blood! Then two weeks later I got a letter from my primary care provider dropping me as a patient. There was no real reason just that “the doctor patient relationship” was no longer feasible. I get it. He is dropping medicare patients from his practice.
I would like to know if doctors can single out patients by virtue of age? At the age of 69 it’s kinda tough to find a new practitioner. I found one at a family practice but was consigned to care by a nurse practitioner. My first visit she spent exactly three minutes with me (oh well). I think that seniors are in for a real shock under this new monstrosity.
A theme seems to pervade the commentary: the law of unintended results will soon dominate our nation’s healthcare in its usual negative form. Instead of decreasing unfunded medical care, the ACA 2010 may actually worsen it.
This is a great summary, Greg.
I will probably read it again and comment more, but let me expand on two points.
When a worker loses employer coverage and goes to the Exchange, he will encounter several things he may not have seen before:
a. He has to write a check each month rather than a payroll deduction.
There will be many lapses, bounced checks, lost premium notices when people move, etc.
b. Age-rated premiums. I left a corporation and had to buy my own health insurance at age 60. I was shocked by what hit me. I had a heart condition and a good income and a watchful wife, so I kept up the premiums. Others will not.
Let me comment on Medicaid. It is true that even under current law, eligible persons sometimes do not sign up. This is not because they “see no value” — how can free coverage be seen as no value?
No, they do not sign up because of illiteracy and a desire to stay off the government radar due to legal status, bail skips, unpaid fines, etc.
Also, some states have made the Medicaid sign up process fairly cumbersome. For a person working two jobs and no child care, signing up might be logistically hard.
In the states where Medicaid does expand into the more stable working poor, it will get a higher percentage of takers than among the very poor.
One more comment:
Holtz-Eakin has been pretty accurate about the ACA all along.
Say he is right about 35 million more persons going to the exchanges, and thereby causing federal subsidies to go up by $1.4 trillion over 10 years.
It sounds almost nuts to say this, but $140 billion a year in extra subsidies is not an overwhelming number in the context of a health care system that spends
2,400 billion a year ($2.4 trillion.)
Let me be more specific. Say that every corporation which drops health insurance, or never provides it in the first place, is obligated to pay an extra payroll tax of 6% because it has essentially dumped its employees into a public program.
Add up the 35 million who Eakin says will be dropped, and add the 25 million who get no health insurance from their employer now or in the future, and you have 60 million workers. If they earn $20,000 each, that means total compensatoin of $1.2 trillion.
A 6% payroll tax on $1.2 trillion would raise $72 billion a year. That would pay for half the federal subsidies.
Here is where I am trying to with this. If America is going to move away from employer based coverage, there has to be higher taxes on someone to replace the employer contributions which are so crucial today. Call it a maintenace of effort if you will,
Greg, a very good and informed post. I am currently in a quagmire on what to do about my own company health insurance renewal coming up soon. I feel a moral obligation to make sure that my employees have access to the very best healthcare through a true medical home and NOT through an ER. However, our current carrier (Humana,) which is a high deductible HSA PLan that everyone likes, offerred us a renewal with a 16% increase. Utterly ridiculous! So…we are shopping once again for affordable health insurance. Ms. Pelosi, Mr. Reid, and Pres Obama should be required to pay for the high premium increases being caused by PPACA…and the insurance industry was downright foolish for supporting PPACA. It must be significantly changed soon.
We’re a small company that always specifically negotiated the medical care “reimbursement” with our employees as part of their compensation package. We paid the employees cash to buy whatever they wanted. Now, I feel like a genius!