Obamacare Update: Lower Enrollment Higher Costs Projected by Congressional Budget Office

Enrollment falls short of projections enrollees less healthy & poorer WASHINGTON D.C. (Texas Insider Report) In its recent Budget & Economic Outlook for the next decade the Congressional Budget Office (CBO) substantially changed its short-term Affordable Care Act (ACA) estimates in ways that show the law is performing far worse than expected. CBOs new projection of 13 million exchange enrollees in 2016 is nearly 40 below previous expectations. In the last 10 months CBO has downgraded its overall enrollment expectation by 38 its expectation of subsidized enrollment by 27 and its expectation of unsubsidized enrollment by 67.    While the downgraded enrollment projection is not surprising CBO projects that the overall cost of the exchange subsidies in 2016 will slightly increase relative to its March 2015 ACA estimatean indication that enrollees are both less healthy and poorer than the agency originally projected. Additionally the ACAs Medicaid expansion is costing far more than projected because of higher enrollment and higher spending per enrollee. The costs of Medicaid expansion almost certainly exceed corresponding benefits given the findings of a recent study by MIT Harvard and Dartmouth economists that Medicaid expansion enrollees only receive about 20 to 40 cents of benefit for each dollar of program spending. Overall CBOs revision demonstrates that the ACAs coverage expansion is primarily benefiting people earning less than 200 of the federal poverty level (FPL)an income equal to $23540 for a single personwhile its costs largely in the form of higher premiums and taxes and fewer health insurance choices are widespread. Lower Than Projected Enrollment Particularly of Middle Class People In a column on November 19 2015 the same date the Mercatus Center published a study on how the ACA was underperforming initial expectations  CBO would likely need to significantly downgrade the laws baseline. Like every other organization that modeled the effect of the law CBO projected far more people would enroll in exchanges than have thus far. These organizations also expected enrollees would be younger healthier and earn higher income than has turned out to be the case. For example in January 2015 the Urban Institute projected that 36 of 2016 enrollees would have income below 200 of the FPL and 25 of enrollees would have income above 400 of the FPL. Based on the most recent data released by the Department of Health & Human Services about 64 of 2016 enrollees have income below 200 of the FPL and only 3 earn income above 400 of the FPL.

• In its March 2015 estimates CBO projected 21 million exchange enrollees in 2016 with 15 million of them receiving tax credits to reduce net premiums and 6 million of them earning income too high to qualify for tax credits.
• In the estimates released in late January CBO decreased those projections to just 13 million enrollees 11 million with tax credits and just 2 million without the credits.
• Therefore in the last 10 months CBO has downgraded its overall enrollment expectation by 38 its expectation of subsidized enrollment by 27 and its expectation of unsubsidized enrollment by 67.

Many have written extensively about why this has likely happened; the short story is that ACA plans are proving to be unattractive to relatively healthy people with income above 200 of the FPL. These plans generally have far higher premiums and deductibles than pre-ACA individual market plans. While people with income below 200 of the FPL can qualify for subsidies to reduce high ACA plan deductibles and other cost-sharing amounts people with income above that level generally confront the entire cost. Even though people with income between 200 and 400 of the FPL generally qualify for tax credits to reduce their premiums and face the prospect of a tax penalty under the individual mandate the vast majority of the previously uninsured earning income above 200 of the FPL are foregoing exchange plans. In a footnote to the recent report CBO assumes that most of these people will purchase plans directly from an insurer. However the ACA outlawed many plans that would otherwise have appealed to this population. Moreover since people who purchase plans directly from an insurer cannot receive tax credits purchasing a plan directly from an insurer does not make economic sense for people earning between 200 and 400 of the FPL. Average Subsidy Cost Skyrocketing  Because of how far enrollment was below initial projections others wrote the following on November 19 2015: While the aggregate subsidy amount will go down the average subsidy amount will likely increase because of higher than expected premiums and a higher percentage of the subsidized enrollees having lower-income and thus qualifying for larger subsidies than CBO anticipated." It turns out I may only be half right. CBO has not released exchange enrollment projections beyond 2016 and its projected subsidy cost is partly a function of exchange enrollment. We can however compare CBOs current projection for the cost of subsidies in 2016 to the one it made in March 2015. In March 2015 CBO projected an aggregate subsidy cost of $53 billion in 2016 which equates to an average subsidy of $3533 for the 15 million projected subsidized enrollees. Yesterdays report projects a $56 billion subsidy cost in 2016 for 11 million subsidized enrollees equating to an average subsidy of $5090. This updated average subsidy amount is 44 higher than the average subsidy projected by CBO only ten months ago! The much higher average subsidy is likely a reflection of larger overall premiums and that subsidized enrollees have lower average income than CBO previously projected (subsidies increase as income decreases all else equal). Medicaid Significantly Increasing In the recent report CBO estimates that total federal Medicaid spending equaled $350 billion in 2015 $48 billion more than federal Medicaid spending in 2014 and $84 billion more than federal Medicaid spending in 2013.

According to CBO spending is significantly higher than projected because of higher-than-expected spending and enrollment for newly eligible beneficiaries under the Affordable Care Act."

CBO estimates that average monthly enrollment of newly eligible Medicaid beneficiaries mostly non-disabled childless adults was 55 higher in 2015 than in the previous year a total of 9.6 million compared with 6.1 million in 2014."

CBO expects that federal Medicaid spending will increase by $31 billion this year. Moreover CBO now projects $187 billion in higher federal spending on Medicaid over the next decade relative to last years projection.  Takeaway

1. Relative to its 2015 ACA projections CBO now expects several million fewer enrollees even including the fact that Medicaid enrollment is above previous projections.
2. CBO also expects higher federal spending largely because the ACA Medicaid expansion appears much more costly than CBO expected.
3. The combination of lower enrollment and higher federal spending than expected provides additional evidence that the ACAs benefits were not worth the corresponding costs.