On the first day of April, the official enrollment numbers for the health care exchanges of the Affordable Care Act were first made public. Obama and his administration claimed victory: 7.1 million Americans had signed up, beating their forecasts by 100,000 enrollees despite technical difficulties with the federal website. The announcement seemed to strike a blow to the Republican Party, which had little part in shaping the ACA or expanding the Medicaid program. Yet when one digs deeper into these numbers and the health reform law, the outcome is hardly as clear as what is being touted.
First, the 7 million figure was one targeted by the Congressional Budget Office last October. The administration then used this figure as its own policy goal. Nevertheless, if CBO guidance is used as a benchmark, the ACA is a complete and utter failure. The CBO has revised the 10-year cost estimate for the ACA to be $1 trillion above the figure initially put forth by the Obama administration. Though increased access to health insurance is undoubtedly a goal of reform, costs must also play a significant role in policymaking. Without a sense of proportion, spending could exceed project returns, resulting in inefficient use of taxpayer money. Benefits must be weighed against costs, an obvious point seemingly lost in the administration’s frenzy of rhetoric. Is providing insurance for 25 million Americans at the cost of $2 trillion — or $80,000 per person over 10 years — really a victory for the administration? Talk about beating projections.
Continuing with CBO estimates, let’s take a look at the updated February 2014 estimated labor market impacts of the ACA. In the long run, the CBO estimates the health care reform bill will reduce total hours worked by up to 2 percent. This is a core issue the administration is tossing aside for short-run figures, even if expanding the public’s options, providing generous premium subsidies and increasing government spending has stimulative economic effects that outweigh some of the incentive issues implicit in the ACA.
However, to see the law’s true long-term effects, it’s as simple as examining how premium subsidies in exchanges are wage-indexed. As one earns income beyond a minimum threshold of the federal poverty level, benefits decrease. Combine this with employers’ lower willingness to hire new employees due to relatively malaise economic growth and increased costs of labor from providing new workers with health insurance under the ACA, and the result is a projected reduction in the number of hours worked, less total labor force compensation and a fall in overall employment.
Abstracting from these outside factors and focusing on the 7.1 million figure touted by the Obama administration still reveals many inconsistencies in the story. Of those who signed up for coverage in the exchanges, around two-thirds were actually previously insured. If one of the cornerstones of the ACA is to reduce the number of uninsured, then it’s unclear how 7.1 million is a noteworthy figure. In fact, assuming the ACA hadn’t passed, CBO analysts projected 10 million Americans would still purchase coverage through insurance brokers and companies anyway. Stack this against the CBO-provided 8 million person figure projected for enrollment under the ACA for that same time period, and it becomes apparent that a 2 million enrollee shortfall actually exists in the non-exchange market.
Digging deeper into the enrollment numbers reveals another problem: the risk pool. Under the ACA, insurance companies have limited pricing options to account for the riskiness of their consumers. This is because lawmakers attempted to make the insurance market increasingly equitable for all, regardless of pre-existing conditions and other risk factors. In this situation, it’s important to enroll a combination of both healthy and sick to make premiums and prices relatively balanced across the insurance pool. However, through the end of February, only 25 percent of those who signed up were young individuals. Because young individuals are a fairly accurate proxy for the healthy, this raises concerns about the actuarial stability of the law itself. Simply put, if the risk pool largely comprises sick individuals, and prices are set to reflect a balanced combination of both healthy and sick, then the financial health of insurance companies is in danger.
The Obama administration will continue touting the enrollment figure as an unimaginable success given the difficulties they faced, and liberals will use these figures in the midterm elections to show how “successful” policymaking can be without the support of traditionally Republican states. However, there are many issues with the ACA with regard to cost, stability, economic effects and long-term impact. Browsing options in states like Illinois and Wisconsin reveals deductibles equal to thousands of dollars for even the least comprehensive of plans. It’s clear that a pragmatic approach is merited given the complex, evolving issues with large-scale health care reform.
But the argument is often shaped in terms that makes it impossible for bipartisan influence. Changes to Medicaid or Medicare are portrayed as cutting the safety net. Obama misapplying Romney’s state health care plan somehow makes Republicans flip-floppers for not supporting something supposedly borne out of their own party. Perhaps leadership change in Washington in upcoming years is what’s needed, or perhaps the problem is within the current diametrically opposed nature of our politics. Either way, we can’t keep kicking the can down the road and hoping these issues will work themselves out on their own.
Jay Upadhyay ‘15 is an economics concentrator.
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