Question

This is about the market failure Obamacare tried to fix. Can you elaborate on the market failures that insurance and supplier induced demand were aimed at addressing? Also, what type of reforms need to be invoked to pursue these missions?

Answer 1

Obamacare promised affordable health insurance for every American, and even penalized those who refused to buy it, the law did nothing to control underlying costs. The very structure of the law which imposed billions of dollars in new, costly regulations also led to higher and higher insurance premiums.  

As a result, when President Trump took office in 2017, average individual market health insurance premiums in states using HealthCare.gov had already doubled when compared to 2013, the year before Obamacare’s main regulations took effect. Average premiums went up by another 26 percent in 2018.

At the same time individual market premiums were spiking out of control, Centers for Medicare & Medicaid Services (CMS) data show a substantial enrollment drop among unsubsidized people on the individual market who do not receive federal premium tax credits. In just two years, from 2016 to 2018, unsubsidized enrollment declined by 2.5 million people, a 40 percent drop.   

These numbers clearly show Obamacare has created a serious affordability problem on the individual market—and this was all put in motion before President Trump took office. Let’s remember that insurers’ process for setting rates for 2018 was well under way at the beginning of 2017 when President Trump took office and based on policies set in place under the Obama Administration.

Simply put, there are too many people without subsidies who cannot afford coverage under Obamacare. For example, when a 60-year old couple in Grand Island, Nebraska making $70,000 a year—which is just slightly too much to qualify for Obamacare’s premium subsidy—is faced with paying $38,000, over half of their yearly income, to buy a silver plan with an $11,100 annual maximum out-of-pocket limit. We should not be surprised if they make the tough decision to drop their coverage. With a similar cold reality facing millions of American families, it was inevitable that Obamacare’s affordability crisis would eventually show up in the rates of uninsured Americans.

The data show that the number of uninsured with incomes greater than 400 percent of the federal poverty line (FPL)—the cutoff point to qualify for federal tax credits—increased by 1.1 million in 2018. The number of uninsured with incomes between 300 and 399 percent of FPL who might qualify for smaller Obamacare tax credits, but still must pay a large portion of premium on their own, increased by 500,000. The total increase in the number of uninsured with incomes higher than 300 percent of FPL represents 85 percent of the 1.9 million additional uninsured.

Together these data show how Obamacare created an entirely new class of uninsured individuals, among those with middle to higher incomes who don’t quality for government subsidies and can’t afford coverage because of skyrocketing premiums.

Much of the news coverage has claimed the increase in the number of uninsured was driven by the decline in people covered by Medicaid. Yet, this simply does not square with the fact that the Census data also reported no statistically significant change in the number of uninsured with incomes lower than 138 percent of FPL, the people most likely to be eligible and enrolled in Medicaid. These numbers help explains why the uninsured rate went up at the same time the poverty level went down.

The fact that most of the movement into the ranks of the uninsured occurred among people with higher incomes who don’t receive subsidies strongly suggests the change is due to affordability problems among higher income people than any issue with Medicaid coverage for lower-income people.

This is especially true considering the consistent strength of the Trump economy and job market during this period. The consistently strong economy means the big change for higher income people has been the affordability of individual coverage, not any change to employer-sponsored coverage.

It is true that CMS has bolstered program integrity to make sure people who are enrolled in Medicaid are actually eligible. Historical trends consistently show Medicaid enrollment declines when the economy strong and growing.

Unfortunately, even with a strong economy and labor market, Obamacare’s flaws cannot be fixed. The Trump Administration has enacted a number of reforms to promote more stable markets and more affordable coverage.

For instance, we’ve issued a series of rules to strengthen the market that delivered on a number of policies industry analysts and state officials had been recommending for years. We’ve also approved 12 waivers for states to create their own reinsurance programs that fund people with higher healthcare costs. By taking these costs out of the individual market risk pool, these programs have all resulted in lower premiums for everyone else, ranging from a 6 percent reduction in Rhode Island to a 30 percent reduction in Maryland.

After taking these steps, we are beginning to see positive results. After multiple years of double digit premium increases, average individual market premiums across the country declined by 1.5 percent in 2019, the very first time since Obamacare started. We’re also seeing a boost in competition among health insurers. For 2019, there are 23 more issuers participating on HealthCare.gov than 2018. As a result, only five states have one issuer, compared to ten states last year. Competition means more options and lower prices for consumers.

Nonetheless, critics continue to claim the Administration’s policies, including the decisions to stop making cost-sharing reduction payments and to reduce navigator and outreach funding through the Exchange have contributed to the uninsured rate. Yet, a federal district judge concluded Congress never appropriated funding for these CSR payments. The President’s budget recommends appropriating these funds, but without further action by Congress the Administration is following the law.

In regards to navigator and outreach funding, CMS data continue to show stable enrollment on the Exchange suggesting these decisions had no impact on enrollment. Likewise, there was not a substantial change in enrollment after the previous administration increased from $51 million to $100 million for the 2017 benefit year. In fact, enrollment actually dropped after this large investment. By implementing other efficiencies on the Exchange, we were able to reduce the Exchange user fee on insurers for 2020, which will result in lower premiums, a direct benefit to consumers.

The Administration has also taken steps to promote more flexible and affordable coverage options that don’t have to comply with all of Obamacare’s costly requirements. The Congressional Budget Office (CBO) projects premiums for these options will be substantially less than what is currently available. These more affordable premiums will help expand coverage to around 1 million people who would have otherwise been uninsured, according to the CBO.

The rate of uninsured may continue to rise as long as Obamacare is in effect. Even its supporters have acknowledged its failures, which is why many of them have given up on Obamacare and are calling for more government through Medicare for all.

While we’re making remarkable progress, we know we have much more work to do. Premiums are stable but still too high for people who don’t qualify for Obamacare’s premium tax credits. The Trump Administration remains firmly committed to helping those harmed by Obamacare’s sky high premiums and providing every American with more affordable healthcare options.