Last Wednesday, the Department of Health and Human Services (HHS) released November enrollment numbers for the federal and state exchanges.
Immediately, the internet lit up with pundits analysing the total number of enrollments. The 365,000 people who enrolled in October and November was below the administration’s goal of 1.2 million, but the pace of sign-ups is growing quickly.
While this data is certainly entertaining to analyse, it doesn’t really matter very much — at least for the sustainability of the insurance market — whether the government is on pace to reach 7 million signups by March 31.
It matters a little whether the enrollees are older than expected, but not as much as people tend to think.
First, the CBO, not the administration, predicted that seven million people would enroll in exchange-based private insurance before the end of March. This was never a White House goal.
In fact, the CBO projects that 24 million Americans will sign up on the exchanges by 2017. That means less than one third of the total enrollees are expected to happen in the first period. If only, say, five million people enroll right now, more could do so in 2014 and 2015. Multiple enrollment periods must pass before we can tell whether people are signing up as the CBO projected. If fewer than (or, in the unlikely scenario, more than) seven million Americans enroll by the end of March, that is not particularly worrisome.
“If there are fewer people overall signed up, that may be a problem of political optics, but not one that really gets to the heart of whether the law is working well or not,” said Larry Levitt, vice president at the Kaiser Family Foundation.
Second, a lot of people are focused on the signups because of concern that low participation could undermine the exchange insurance markets. If participation is not what insurers expect, they might raise prices in future years. But to prevent “death spiral,” where people leave insurance markets because of spiking prices, the key issue isn’t whether enough people sign up. It’s whether those who do sign up are younger and healthier (or older and sicker) than expected, and we don’t yet know where we are on that.
The Obama administration’s goal is for 39% of exchange enrollees to be between the ages of 18 and 35. HHS has not released the demographics for signups in the federal exchange, but some states have released their own figures. In Kentucky and Connecticut, about 19% of enrollees are young. In Maryland, about 27% are. In California, it’s 21%.
These numbers are below the target, but they’re not unexpected. The people who need coverage the most — older, sicker Americans — will sign up first. The website’s catastrophic launch only exacerbated this trend as young people have little incentive to repeatedly try to sign up. They will wait until the website functions correctly.
“In many ways, I’ve been pleasantly surprised at how many young people have enrolled early on,” Levitt said. “They’re actually higher than I would’ve expected.”
Third, the demographic data on the national level doesn’t matter, because each state has its own risk pool. Every individual state will need to attract enough young, healthy people to enroll. National age demographics will give us a general understanding of young enrollment figures, but state-level data is necessary to determine the viability of each exchange.
Fourth, even if some states have risk pools that skew older and sicker, that does not mean that a death spiral will take place. In particular, a ‘risk corridor’ program exists to mitigate the risk to insurers of receiving costly patients. Risk corridors stabilise premiums by covering insurers’ excess costs if they miscalculate the actuarial value of their plans. Effectively, the government provides reinsurance to the insurers, taking on much of their risk of loss.
On the other hand, if costs are lower than expected (perhaps because of an especially healthy signup pool), insurers will pass on some of those savings on to the government. In addition, insurers will not want to raise premiums after the first year and guarantee they won’t receive young, healthy people in future years.
A new analysis from Kaiser yesterday drives home this point. They find that if young adults only make up 33% of enrollees instead of 39%, then the costs to insurers wil be 1.1 per cent greater than expected. If it is 25%, costs are only 2.4 per cent above premium revenues.
This is because the law limits, but does not eliminate, age-based rating. Insurers can charge older adults only three times as much as young ones. As the graph to the right shows, this forces younger Americans to pay more than they would otherwise, but the 3:1 limit does not drastically alter the relative premiums. Older Americans are still paying substantially more than younger ones, limiting the consequences if fewer than expected young people enroll.
For these reasons, the enrollment totals aren’t nearly as important as the media makes them out to be. The December figures will be more informative than the October and November data, but they still will only be a piece in a much larger puzzle that will take years to complete.
“I know people are impatient,” Levitt said. “but it’s important to wait a little bit and let things shake out.”
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