Tuesday, April 14, 2015

Is the Administration Low-Balling Their 2015 Obamacare Enrollment Estimate?

Well, with an estimate of only 9 million to 9.9 million, apparently they are. But I will suggest the focus should not be on anybody's estimate for 2015 but rather on how many people need to enroll in Obamacare to make it sustainable.

A few points:
  • The Kaiser Family Foundation estimated that when Obamacare launched in 2014, 17.2 million people were eligible for subsidies.
  • The only place you can get an Obamacare subsidy is in the state and federal health insurance exchanges.
  • The longtime insurance industry underwriting rule is that you need 75% of an eligible group to be confident of a sustainable risk pool––that is enough healthy people paying in to offset the cost of the sick people.
  • So far 85% of those who have purchased health insurance in the exchanges are receiving a subsidy. 
  • The insurance company "3Rs" reinsurance program, that protects the carriers from most Obamacare underwriting losses, expires at the end of 2016.
So, Obamacare needs to have a sustainable population participating by the time the insurance company support expires at the end of 2016.

While many more people will enroll off-exchange, the number of the subsidy eligible population enrolling is an easy number to get and, I will suggest, serves as a pretty good proxy for Obamacare's success.

It's a fairly easy calculation to figure out how many people we need in the Obamacare exchanges to be confident the program will be self-sustaining.

First, we need 75% of those 17.2 million who were subsidy eligible in the first place, or 12.9 million.

Presuming that 85% of those in the exchanges continue to be on subsidy, we would need a total of 15.2 million (12.9 million getting a subsidy and another 2.3 million not on subsidy) in order to reach a sustainable level.

Now, the 75% threshold is a guideline. Maybe the right number the exchanges need to hit is 14 million, or maybe it is 16 million. But this is the ballpark we need to be in.

The Congressional Budget Office (CBO) has estimated that 13 million will buy health insurance in the Obamacare exchanges by the end of 2015. To stay on a sustainable enrollment track, that 13 million estimate makes sense to me––leaving a net gain of only another 2 million in the third and final year of open enrollment.

Today, the administration said that their goal is for 9 million to 9.9 million to be purchasing health insurance on the exchanges by the end of 2015.

Is that a low-ball estimate designed to manage expectations?

Apparently. But playing expectation games is not what they need to be successful at.

Enrolling enough people for a sustainable insurance pool by the end of 2016 is what they will need.

If Obamacare isn't up to a sustainable enrollment level by the time the health insurance company reinsurance protections expire at the end of 2016, the 2017 rate increases will be huge.

Those 2016 rate increases will be released on about Election Day 2016.

Low-balling expectations might buy you some short-term media puff.

But if they don't get this thing to a sustainable enrollment level by November of 2016 no one will remember their latest PR campaign.

Halbig Decision Puts Obamacare Back on the Front Burner and Will Give Republicans a Huge Political Headache

Today's 2-1 decision by the DC Court of Appeals striking down federal premium subsidies, in at least the 27 states that opted for the feds to run their Obamacare insurance exchanges, has the potential to strike a devastating blow to the new health law.

The law says that individuals can get subsidies to buy health insurance in the states that set up insurance exchanges. That appears to exclude the states that do not set up exchanges––at least the 27 states that completely opted out of Obamacare. Another nine states set up partnership exchanges with the feds and the impact on those states is not clear.

The response by supporters of the law, and the IRS regulation that has enabled subsidies to be paid in the states not setting up exchanges, hinges on the argument that the language is at worst ambiguous and the Congress never intended to withhold the subsidies in the federal exchange states.

But in the DC Court ruling one of the majority judges said, "The fact is that the legislative record provides little indication one way or the other of the Congressional intent, but the statutory text does. Section 36B plainly makes subsidies only available only on Exchanges established by states."

My own observation, having closely watched the original Obamacare Congressional debate, is that this issue never came up because about everybody believed about all of the states would establish their own exchange. I think it is fair to say about everyone also believed a few states would not establish their own exchanges. Smaller states, for example, might opt out because they just didn't have the scale needed to make the program work. I don't recall a single member of Congress, Republican or Democrat, who believed that if this happened those states would lose their subsidies.

At worst, this is clearly a drafting error that in the old days would have been quickly fixed in a technical corrections bill. But these aren't the old days.

This will now work its way through the courts. No one risks losing their subsidies until this issue is finally decided. That will not happen until well after the next open-enrollment on November 15th.

So, for now it is business as usual for Obamacare. But this will send a chill through about 4 million people in these states that are among the 87% who received a subsidy on the federally-run exchanges and are getting an average of 76% of their premium subsidized.

A few observations:
  1. It is hard to see how a Roberts' Supreme Court would finally deal Obamacare so serious a blow given that the Court upheld one of the core elements of the law with the Chief Justice going through the legal contortions he did by calling the individual mandate penalty a tax. In fact, just after the DC ruling the 4th Circuit Court of Appeals in Richmond ruled in favor of the administration on this issue in a 3-0 decision.
  2. If the DC Court of Appeals ruling is upheld it has the potential to be devastating for Obamacare. With so many people receiving so much in subsidy, the potential is there for the healthiest of these to drop their coverage while the sickest do whatever they need to do to keep their policies creating a major anti-selection problem for the insurers. Premiums on these federal exchanges would undoubtedly skyrocket.
  3. This would put Republicans in the federal exchange states in a heck of a political bind. It seems to me these governors and legislators could opt to immediately contract with the feds to operate their exchanges in order to preserve the subsidies (If a state can contract with Accenture to build and run an exchange, why couldn't it contract with HHS to do the same?). If the states were to do this immediately, no one would have to lose their subsidies.
So what would these Republican governors and legislators do?

In effect, the political consequences for all of these people losing their subsidies and their coverage would immediately shift to the Republicans who control these state governments.

Proponents of Halbig argue that the fault for people losing their coverage would be on the Obama administration because they have operated Obamacare in an illegal manner by paying subsidies that are not allowed under the statute.

The courts could well end up supporting that argument.

And, millions of people would have their insurance yanked out from under them in what people will see as part of the ongoing partisan political wars being waged by people out of touch with life in the rest of the country.

The fundamental problem the Halbig proponents have here is that common sense, whatever a court rules, tells people that denying subsidies in half the states was never the intent of the Congress––that this is all about political point scoring and stopping a law Republicans hate.

Obamacare has lots of problems. But many would argue those problems should be solved in the Congress, not in the courts. If the proponents of Halbig want to effect real change they need to win some elections.

Poll after poll says a big majority of voters want Obamacare fixed not repealed.

Obamacare's most partisan and ideologically opposed enemies scored a big victory today.

On the surface, Republicans will be attributing this decision to the way the Democrats and the Obama administration wrote this flawed law and the way they have implemented it. But below the surface lots of sensible Republicans must be sweating bullets.

Will Tax Season Be Obamacare's Next Big Challenge? Is There Really an Individual Mandate?

Will tax-filing season be the next reason for consumers to complain about the new health law? Come tax time, will the Obama administration really enforce the individual health insurance mandate?

The IRS is out with a 21-page publication––Publication 5187––describing what taxpayers need to know about Obamacare in order to file their 2014 taxes.
On page six you will find this:

So, if the taxpayer checks the box on line 61 "no further action is required"––no proof of insurance needs to be furnished. Presumably, the taxpayer is subject to an audit––from an understaffed IRS suffering from more budget cuts.

What happens if you don't check box 61? You have to pay the tax for not having health insurance.

Anyone who doesn't check that box can apply for an exemption from the individual mandate.

According to the Wall Street Journal, "The instructions for completing the mandate exemption form run 12 pages, list 19 types of exemptions (with multiple codes), and include worksheets that may require individuals to go to their state exchange's Web site to find the monthly premiums that will determine whether they had access to 'affordable coverage."

For the last year we have heard that a taxpayer that got too large a subsidy will have to pay the excess back––and a taxpayer that got too little will get a refund. How will this be reconciled? The directions for doing this fill up pages 10 to 15 in IRS Publication 5187 and explain how Form 8962 must be prepared.

Anyone who got an Obamacare insurance subsidy in 2014 must complete Form 8962. Here below is Form 8962.

Luckily, the President never said, If you like your Form 1040EZ you can keep your Form 1040EZ!

The Obamacare Supreme Court Subsidy Challenge––Surprising Comments From Anthony Kennedy and Maybe a Way Out for John Roberts

The Obamacare Supreme Court Subsidy Challenge––Surprising Comments From Anthony Kennedy and Maybe a Way Out for John Roberts

The Supreme Court heard oral arguments yesterday in the King v. Burwell case that would throw out the Obamacare subsidies for millions of people now receiving them in the federally run health insurance exchanges.

It sure sounded like perennial swing vote Justice Anthony Kennedy is ready to save the subsidies and Obamacare given his comments suggesting a finding for the plaintiffs would end up coercing the states into building an insurance exchange––something that would present Kennedy with a "serious constitutional problem."

But I was also struck by this line in a Washington Post article about the oral arguments: "More than the other justices, Kennedy is the one most likely to think out loud during oral arguments, trying out various theories and posing quandaries for lawyers."

Translated: It ain't over til it's over.

At one point, conservative Justice Samuel Alito asked if perhaps the Court could delay the effect of a ruling ending the subsidies thereby giving the Congress and the states time to remedy the fallout.
Will this be the tack the conservative Justices will follow to get another perceived swing vote, Chief Justice John Roberts, on their side this time?

Many observers have been wondering out loud, including me, how Roberts would vote to deal Obamacare such a serious blow now when he didn't three years ago in the face of the challenge over the constitutionality of the individual mandate.

By finding for the plaintiffs and then allowing a substantial period before the ruling takes effect, conservative Justices might argue, either the Congress would have time to fix the problem or states would have the time to decide whether or not to set up an exchange and keep the subsidies for their residents.

So, the conservatives would argue, Roberts would have the opportunity to vote with the conservatives and craft a way for the elected representatives to avoid any catastrophic outcome. His Court would not be responsible for causing a major insurance market mess and he would have voted for a judicial outcome that followed the plain text of the law.

As a practical matter, having just watched the House Republican fiasco over holding up funding for the Department of Homeland Security as a means of reversing Obama's recent actions for illegal residents––that resulted in Republican leaders having to heavily rely on Democratic votes to bail them out, giving this Congress time to agree with Obama on fixing Obamacare would likely be a fools errand.

But many state legislatures and governors would likely act to quickly do the paperwork––and it wouldn't be much more than simple paperwork––necessary to create a state-based exchange and then contract with the feds to continue running it, without consumers having to lose their subsidies.

And, other states might well not act to remedy the problem––like Florida and Texas that have more than two million Obamacare subsidy eligible residents between them and have legislatures with a history of doing everything they can to undermine Obamacare.

But as the conservative Justices might argue, that is their decision and not something the Court can be held responsible for.

Then there is Justice Kennedy.

Monday, April 13, 2015

Obamacare: What About the Working Class and the Middle Class?

The administration issued a report yesterday that says individuals who selected plans in the federal health insurance exchanges have a post-credit premium that is on average 76% less than the full premium for the plans they selected. And, 69% are paying less than $100 after the subsidies––46% are paying $50 or less.

The administration also pointed out that 65% of individuals selecting the Silver Plan in the federal exchange chose the lowest or second-lowest cost Silver Plan.

As I have said before, only about one-in-three subsidy eligible people bought and paid for coverage during Obamacare's first open-enrollment.

It would appear from this data that it is the lowest income people who are most often signing up for coverage. They are the ones who get the biggest premium subsidies as well as the reductions in their deductibles and co-pays.

The Obama administration has been touting the report. The new HHS secretary said, "We're finding that the marketplace is working. Consumers have more choices, and they are paying less for their premiums. Nearly 7 in 10 consumers who signed up in the marketplace are paying $100 or less for that coverage."

That is one way to look at it.

Here is another. The lowest income people––who pay the lowest premiums and out-of-pocket costs––are the ones who are obviously signing up. That explains why the average consumer subsidy is so high and the average net cost is so low.

As I have said on this blog before, the biggest consumer problem Obamacare has is that the plans––with their still high premiums even after the subsidy, big deductibles, and narrow networks––are not attractive to working class and middleclass families and individuals who don't qualify for the biggest subsidies.

Simply, the Obamacare plans are unattractive to all but the poorest who get the biggest subsidies and the lowest deductibles.

Last week, the CBO said that 87% of the 30 million who they project will still be uninsured in 2016 will not pay an individual mandate fine because of all of the Obamacare hardship exemptions. Obamacare looks to be on its way to creating a chronically uninsured class.

I understand the administration's desire to spin the enrollment results. But if they want to see Obamacare's approval ratings rise above their longstanding abysmal results I suggest they take a hard look at why two out of three subsidy eligible people aren't buying it and work to make these plans more attractive for them.