Obamacare Coverage is Sick and Getting Worse

The Affordable Care Act’s (ACA) 4th open enrollment began November 1. The occasion was accompanied by news that premiums are up sharply for 2017. The benchmark silver plan increased by nearly one-quarter (22%), on average. This is a considerable sum if, for example, your monthly premium rose from $400 to $500. However, the increase is not uniform across all states. A 25-year-old women can get the benchmark silver plan for $244 per month in Missouri. A similar plan would cost nearly $400 per month in Arizona or West Virginia and $710 in Alaska.

Many states have found their rates have skyrocketed. Premiums in Arizona will increase by a whopping 116% in 2017, while rates in Oklahoma and Tennessee are rising by 69% and 63%, respectively. Minnesota, Alabama, Pennsylvania, and Nebraska have premium hikes between 50% and 60%. Nearly half of states are experiencing premium increases of 20% or more. One-quarter of states have increases that are only single digit. Premiums in Indiana and Massachusetts will be 3% lower than 2016.

Insurance Losses Mount

The ACA changed the way individual health insurance is regulated. The goal was to expand coverage, make coverage more comprehensive, and remove the restrictions on applicants that insurers placed on them to avoid losses. With those restrictions gone, losses have mounted. Earlier this year the non-profit Blue Cross Blue Shield Association found that Obamacare enrollees are about 22% costlier than people covered through employer plans. Aetna found enrollees’ average duration of coverage was less than 12 months. Applicants who enrolled late through special enrollment also tended to drop out early—after only about four months. Short duration enrollees also had higher costs than enrollees who stayed in a plan all year—boosting insurers’ losses.

Although the ACA does not allow insurers to charge applicants based on health status, it does allow for a 3:1 age adjustment. In most states the benchmark silver plan for a 25-year-old woman is about half the cost (45%) of a 55-year-old women (rather than 33%). This is meaningful because the expected medical costs for someone in their 50s is about five times that of someone in their 20s. Obamacare is a bad deal for young people by design. The Obama Administration initially hoped 40% of enrollees would be young people who would bolster the health of the exchange system. However, 20 somethings are balking; most are healthy and may not perceive a pressing need for high-priced coverage.

Why are the premiums rising so fast? There are a variety of theories. One posits that states that did not expand Medicaid are experiencing higher premiums hikes. I could find no evidence that is true. Another theory is that states that allowed pre-ACA plans to remain for a couple years have had far worse adverse selection in their exchange plans. It’s hard to say whether that is accurate, but the most heavily regulated states prior to the ACA have experienced smaller increases because they were already expensive. The fact that the ACA allows young people up to age 26 to remain on their parents plans may have reduced the number of young people enrolling in Obamacare. In that regard the ACA may have undermined itself.

The exchange system is turning into a high-risk pool for people poorer and sicker than average. It remains to be seen whether the individual market can survive without significant reforms.

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