Jason Furman has become accustomed to proclamations of Obamacare’s collapse.
“Having been involved in the [Affordable Care Act] since 2009, I have heard it pronounced dead hundreds of times,” says Furman, who chairs the White House Council of Economic Advisers. “Half of those times were before it was even signed [into law], and half were since then.”
Obamacare has survived those other predictions. And Furman says the law will absolutely survive the current round of double-digit rate hikes, too. He argues that what we’re seeing in the marketplaces is a one-time course correction rather than any sign of collapse.
“I think it is absolutely impossible for these markets to enter a death spiral,” he says. “It is frankly crazy that people are leaping to the death spiral conversation.”
I spoke with Furman and his colleague Matt Fiedler, chief economist at the CEA, Friday afternoon about Obamacare’s marketplaces, what the premium increases mean, and why they believe a death spiral would be impossible given the health law’s structure. What follows is a transcript of our conversation, lightly edited for clarity and length.
The Obama administration released data last week that showed premiums rising steeply in 2017, more than they’ve ever gone up before. Tell me how you think about that double-digit increase, and what it means for the Affordable Care Act.
It’s important to put the rate increases we’ve seen into context in terms of who is affected by them and how it will affect the ACA going forward.
The first thing to understand is about 80 percent of Americans are getting their health insurance through their employer and through Medicaid and Medicare. The increases you’re reading about have nothing to do with you if you’re in one of those circumstances.
The second is that if you are on the marketplace itself, 84 percent of the people on the marketplace last year got tax credits. The way the tax credit works is it limits how much you’re spending to a percentage of your income. You’re not being exposed to the big increases. This is why a [recent] research brief found that 72 percent of current marketplace enrollees can find a plan for $75 or less in premiums per month.
The third point is that most consumers continue to have choices, and in fact the same study found that if you switch to the lowest-cost plan you could save $28 per month or 20 percent off your plan. So there are choices.
These are no doubt transitional phenomena. Part of what happened was insurers initially came in well below what anyone would have expected. Premiums were 12 to 20 percent below what they projected they would be. They didn’t know exactly how many people would be signed up.
And that’s what you’d expect with a new market. Some of that was stabilized with transitional policies. Now, with the price increases, premiums are almost exactly where CBO had its forecast when they did the forecast before it went into effect. A lot of what you see is transitional, and the vast majority of Americans are completely insulated.
The Congressional Budget Office also estimated that the marketplaces would be significantly larger than they are right now. They had thought it would be about 20 million people, when we’re actually around 10 million. I know some of this is due to positive things, like employers not shifting their workers onto the marketplace. But is the small size of the marketplace worrisome? It could make it harder to get a balanced risk pool of healthy and young people.
One of the goals was to reduce the number of Americans without health insurance. Twenty million people have gained health insurance since the ACA passed who didn’t have it before.
I don’t think there is any reasonable, logical, or historical experience that would say that the average of 10 million enrollment we had in the first six months isn’t large enough to support a sustainable, thriving market. We would like to see more people coming in, definitely, because we think a lot more people would benefit from it. But the market doesn’t need to be bigger to be sustainable.
Right now the marketplaces are a lot more of a subsidized marketplace than initially expected. I was looking at some old CBO projections from 2009 that estimated that 43 percent of enrollees would buy coverage without a subsidy. But right now, that number is at 17 percent. Is it problematic to have such a heavily subsidized market? Does it suggest that the product isn’t appealing to people who aren’t getting financial help?
As the president has said, in his JAMA article and last week, we can and should take steps to improve the ACA. First of all, states can expand Medicaid, and that would take some of the people between 100 and 138 percent of the poverty line and move them from the marketplace into Medicaid. That would lower the premiums in the marketplace by 7 percent.
Congress increasing subsidies would attract more people into the marketplace, too. [The president has also proposed] some type of triggered public option in places with low numbers of consumer choices, similar to the concept in Medicare Advantage that [George W.] Bush passed.
The right way to think about any of these changes is that they’re moving you along a continuum. You cover a little more subsidy, you have a little more enrollment. None are going to be the difference between the marketplace continuing to exist and the marketplace going into a death spiral. All are about building into improvements.
The economics are very clear here, when 84 percent qualify for subsidies. The people who are eligible for tax credits have, effectively, inelastic demand. When the price goes up, their tax credit goes up. They’re going to want to continue to stay in. That prevents the market from going into a death spiral and gives insurers an incentive to enter. When you’re able to sell a great product for $75 or less a month, it attracts a lot more demand.
We’d like more participation by everyone. We think there is a great deal. We look at the subsidies and think that making them more generous would both help this become more affordable and bring more people in, including some healthier people.
What about dialing up the individual mandate? That would be another way to motivate people into the marketplace. Right now it’s a lot cheaper for high-income people to pay a penalty rather than buy insurance.
The penalty was $395 in 2015 and went up to $695 this year, and will be $695 next year. The only thing that enrollees have seen is the  amount, when they filed their taxes this year.
We expect that as people gain more experience, they gain experience with the full amount, we’ll see increasing effects [of the individual responsibility provision] over time. What we have seen are coverage gains among those above 400 percent of the poverty line, where there aren’t tax credits. We think as people gain more experience, as the IRS sends letters to those who have paid the fee, it really will be important.
I want to go back to the people who buy insurance, both on and off the marketplace, who don’t get subsidies. This is a group of at least a few million people, maybe 7 million people, who aren’t insulated from the rate increases. Do you worry about these people leaving, particularly people who are healthy?
When you have 84 percent in the marketplace subsidized — or two-thirds, if you include the whole individual market — that effectively arrests the death spiral, that effectively prevents it.
One thing that is interesting — it doesn’t get at this group, but it gets at part of why we think there is absolutely no reason whatsoever to think there is a death spiral. From 2015 there was a positive correlation between the change in the benchmark premium and enrollment. Counties that saw larger premium increases also saw larger increases in enrollment. [Ed. note: I followed up to ask where this data came from. A White House spokesperson says it reflects “internal CEA analysis of HHS's public data.”]
RAND did a study that looked at what would happen under a number of different assumptions for the individual market. They found that even if you had a large scale of young adults not in the marketplace, that would have small effects on premiums. This all points at the robustness of what we have, that none of the underlying premiums rely on that group being there.
The core point is we think we have a market structure that is highly robust.
So do you think a death spiral would ever be possible, given the current structure of the marketplaces?
I think it is absolutely impossible for these markets to enter a death spiral.
The economic incentives are incredibly clear, both on the side of individuals where, for the large majority, there are no incentives for healthy people to leave the market and from the perspective of insurers. They know they’ll have a market for that product, and that’s a real incentive to enter.
It is frankly crazy that people are leaping to a death spiral conversation, when for thee straight years you’ve seen increased enrollment, and counties with faster premium increases have had faster enrollment. [The death spiral conversation] is based on something that doesn’t make sense in theory and is not something we’ve seen in practice.
There are two other things I’d mention. There are a wide array of states that have steady pricing. This isn’t just states like California, but also states like North Dakota and Wyoming and a whole other list of states I can run through. If this market were so balanced on a knife’s edge, if it were about to run off to a death spiral, you wouldn’t see such a wide array of states convening to a stable place so quickly.
It’s also worth thinking about the pre-ACA market. New York did introduce community rating and guaranteed issue without the stabilizing mechanism of premiums. There has been research into those markets, and they had significant enrollment. If you didn’t have a death spiral under those circumstances, it's difficult to see how you could have one here.
Having been involved in the ACA since 2009, I have heard it pronounced dead hundreds of times. Half of those times were before it was even signed, and half were since then.
Premiums in 2017 are roughly where we thought they would be. The decline in the uninsured is what we would have thought would be the case. Overall costs are lower than what we would have thought. And you don’t observe any empirical evidence for a death spiral or have any theory on it.
There are a lot of people who will have to switch plans to keep their premiums low, and as I understand the ACA, this is a feature and not a glitch. The whole idea was to encourage people to shop for coverage and make decisions based on prices.
But this is one of the things that I hear the most complaints from Obamacare enrollees about — that they are constantly having to switch doctors because they’re always switching plans. I understand that shopping pushes insurers to be more competitive, but it also seems to have some significant downsides when it comes to continuity of care.
The philosophy [of the Affordable Care Ac] was to take our current system, build on it, and improve it and fill in the cracks in the system. It was not the president’s intention to knock everyone out of employer-sponsored insurance and into the marketplace. It was designed to be a better option for people who, before, didn’t have an option or didn’t have an affordable option because no subsidy was available. And that is exactly what the marketplace has done.
Employer-sponsored coverage has stayed the same. The goal here was not every single American in the marketplace. The goal was to make it a better option for people who didn’t have insurance before. On average, marketplace shoppers will have 30 plans to choose from. Eight of 10 will be able to choose from two or more issuers.
We’re mindful that this is a market where consumers have to be engaged. One of the things the team over at CMS [the Center for Medicare and Medicaid Services, which runs Healthcare.gov] does [is] a lot of work helping consumers compare across plans, helping make sure they can find out which doctors and which drugs are in this plan versus another plan. They’re adding more categorization of networks, to help consumers understand is this a broad network or a narrow network.
There are a lot of virtues to a competitive market. It puts pressure on provider pricing and issuer pricing. The trick to make that work is make sure consumers have the tools they need to navigate it.