OBAMASCARE JANUARY 10, 2014
Last month, everybody wanted to know how many people were signing up for Obamacare. This month, everybody wants to know how many healthy people are signing up for Obamacare.
It’s a reasonable question. The underlying principle of insurance is to spread risk—get enough healthy people to sign up for insurance, and there are enough premium dollars to cover the relatively high costs of that small minority who are sick. National health insurance systems operate this way. So do the plans that large employers run for their employees.
The worry with Obamacare has been that healthy people won’t participate, at least in sufficient numbers. Maybe they will decide the available insurance is too expensive or insufficiently generous. Or maybe they’ll get frustrated with the enrollment process and give up. Whatever. If healthy people don’t show up at the rates insurers expect, then the insurers will discover they don’t have enough money to pay claims. They’ll have to raise premiums, potentially scaring even more healthy people away, leaving insurers with even fewer premium dollars and forcing them to raise premiums even more.
It’s going to take insurers a few months, at least, to figure out exactly what kind of customers their plans are attracting. That's focused attention on the one variable that can be measured now: Age.
Youth is not be the same thing as health. A 33-year-old with diabetes will run up bigger physician and drug bills than a 61-year-old with no serious medical problems. But, as a general rule, younger means healthier. And the early numbers haven’t seemed that encouraging.
Overall, according to a study by the Kaiser Family Foundation, about 40 percent of the people who could eventually buy coverage through Obamacare marketplaces are between the ages of 18 and 34. But, as of December, just 22 percent of the people signing up for coverage in California were in that demographic. Other states reported similar data. The federal government hasn’t yet provided an age breakdown for people getting insurance through healthcare.gov, the website it operates on behalf of 36 other states. But it will probably provide that information soon. When it does, the numbers may not look any better.
Is this a big deal? One way to answer that question is by looking at the best test case available: Massachusetts, which introduced a similar reform scheme in 2007. Thanks to analysis from Jonathan Gruber, the MIT economist who was an architect of both the Massachusetts and federal reforms, we know that enrollment was slow to get rolling in Massachusetts—and that, relatively speaking, healthy people came into the system late. Now Gruber has done a new analysis, breaking down enrollment specifically by age, and provided it to the New Republic.
The graph above tells the story. Over the course of the first year, the proportion of young people (in this case, ages 19 to 34) who had obtained health coverage through the Massachusetts insurance exchange grew. In other words, they were more likely to sign up late.
The precise figures don't mean a lot, in part because the Massachusetts analogy is hardly perfect. John Sexton of Breitbart (yes, that Breitbart) has written about some of the key distinctions. But the trend is pretty clear—and, according to Gruber, it provides some important lessons. "These data aren't 100 percent predictive for every state, most importantly because of differences across states in the share of the potential market that is young," Gruber says. "But these facts highlight two things. First, you don't need a huge/majority share of enrollees to be young for markets to function well. Second, the young tend to wait to sign up until closer to the deadline.
Obamacare could obviously unfold differently, with plenty of variation from state to state. In some places, participation among the young might not rise the way it did in Massachusetts—or, at least, it might not reach the same levels. But that doesn't mean those states are destined for an insurance "death spiral," in which carriers jack up rates so high that only the very sick stay in the system.
The new health care law has a series of built-in shock absorbers, designed to protect the system from precisely these kinds of problems. That same Kaiser Foundation study suggested that even a very skewed enrollment during the first year would necessitate only a modest premium hike. In addition, insurers have incentive to keep premiums low for at least another year or two, while new people are still flowing into the system.
As Linda Blumberg and John Holahan from the Urban Institute noted in a recent paper, the combination of Obamacare's shock absorbers and insurers' profit motives are likely to keep carriers from jacking up rates in 2015, even if the final enrollment numbers are smaller and skewed towards the unhealthy—just as long as insurers believe that, over time, the situation will get better. "It's a problem if it goes on forever," Holahan told me, "but it's not a problem if it's just year one and if enrollment is improving over time ... The system can handle it."
None of this means that age and heath status of Obamacare enrollees are irrelevant. Both are critical to the system's success, particularly over the long run. But, as with almost every other Obamacare freak-out, this one requires some context. The new data from Massachusetts provides some.