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Obamacare is having a surprisingly good year

It’s time to rethink the individual mandate.

Obamacare’s marketplaces are having a surprisingly good year.

Two years into the Trump administration, more health plans are signing up to sell coverage. Premiums for mid-level plans actually went down 1 percent. This is after years of double-digit increases, many under the Obama administration.

This all really surprises me. These positive changes are happening the same year that Obamacare’s individual mandate — the penalties for not carrying health coverage — is going away. They’re happening at the same time the Trump administration has rolled out policy changes that were expected to weaken the marketplaces, like letting consumers enroll in skimpier, cheaper plans that don’t comply with Obamacare rules.

I thought these changes would have scared insurers away from the marketplaces, or at least encouraged them to jack up their prices. But that just doesn’t seem to be happening.

I called up two of the experts I trust the most when it comes to understanding Obamacare marketplaces — Chris Sloan at Avalere Health and Larry Levitt at the Kaiser Family Foundation — to figure out what was going on.

Both of them agree: The Obamacare marketplaces seem to be pretty resilient to policy headwinds.

”It feels like we’ve finally hit a plateau with this market,” says Sloan. Or, as Levitt puts it, “At this point, the market looks pretty stable.”

Part of that, they say, has to do with something that seems boring but might actually be Obamacare’s secret weapon: the structure of its premium tax credits.

These are the subsidies that low- and middle-income Americans receive to purchase coverage and, crucially, they are tethered to the price of a mid-level health plan. When premiums go up, the tax credit goes up with it. This makes the 9 million or so subsidized Obamacare enrollees very price-insensitive; the tax credits insulate them from the sticker price of their coverage.

These are the consumers who have stuck with the marketplace as premiums have bumped up and down. They’re the reason that more health plans are selling on the marketplaces in 2019 — they know this group of people can reliably be counted on to purchase coverage.

”The availability of essentially unlimited tax credits is really important in a market that experiences this amount of volatility,” says Sloan.

And it’s not really clear that Congress understood how important the tax credits were when they were writing the Affordable Care Act. At the time, Levitt remembers that legislators settled on the final structure — premium subsidies that would cap individual contributions as a share of income — because they wanted a strong talking point.

”Congress wanted to say nobody would pay more than a certain share of their income for insurance,” he says. “I don’t think anyone really anticipated how powerful of a mechanism it would be.”

The second thing I heard from both Levitt and Sloan: We’re starting to learn that the individual mandate isn’t as important as most health policy experts originally thought.

”This is the first enrollment period where the individual mandate penalties no longer apply,” Levitt says. “At one point, people thought that would be an unmitigated disaster, and so far it doesn’t seem to be that way.”

With the benefit of hindsight, it’s easier to see why the mandate may not have mattered as much as we thought — and why taking it away isn’t collapsing the marketplaces.

For starters, the penalty was always pretty small. That made it more politically palatable but also less of a motivator for signing up for coverage. What’s more, the penalty was assessed as part of the income tax process — meaning that it wouldn’t be paid until more than a year after someone made their coverage decision.

”The mandate, as it was constructed, was not very effective,” Sloan says. “You saw lots of exemptions which really watered down its efficacy. And the structure of having it paid as a tax penalty meant that you weren’t fined until 18 months after your decision.”

Levitt has done a lot of work analyzing insurance filings and says that, on average, health plans raised their premiums 6 percent to account for the individual mandate disappearing. In other words: Premiums would be declining even more if the mandate were still here. Still, at the same time, the disappearance of the mandate is leading to a small premium bump and not full-scale collapse.

The place where the Obamacare markets are looking weakest right now is arguably enrollment. We’re currently in the middle of open enrollment and, right now, numbers are lagging behind where they were last year.

But both Sloan and Levitt caution against reading too much into the early numbers due to a number of changes that have happened since 2017. For example, last year, a lot of insurers left the market. So lots of customers got notified that they needed to visit to find new plans.

This year, fewer plans are exiting — and those same customers will get a notice saying they’ll be reenrolled in their current coverage unless they want to switch to something else. The impetus to shop just isn’t as great.

Another important change includes Virginia starting its Medicaid expansion on January 1 (which will siphon off some marketplace customers into the private program) as well as the improving economy — which likely means more people getting coverage at work and fewer needing to turn to the marketplaces in the first place.

All told, it’s hard to know where the signup numbers will shake out. But what we do see pretty clearly is that Obamacare marketplaces aren’t collapsing under Trump. If anything, they’re proving more resilient than a lot of observers expected.

This story appears in VoxCare, a newsletter from Vox on the latest twists and turns in America’s health care debate. Sign up to get VoxCare in your inbox along with more health care stats and news.

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