WikiLeaks published a stunning memo, dated November 23, 2015, to presidential candidate Hillary Clinton and John Podesta, the chairman of her campaign, from Chris Jennings, the former Deputy Assistant to President Obama for Health Policy, about serious problems with the Affordable Care Act (ACA). Though intended only for internal viewing, the document is now in the public domain. Similar to the Jonathan Gruber statement of how policymakers intentionally mischaracterized key ACA provisions because of the “stupidity of the American voter,” this memo shows how ACA supporters’ public optimism contrasts with private concern about the law and a need to change course. According to Jennings, “the health insurer and enrollee participation issues in the exchanges are, at best, disconcerting. There are also adverse risk selection and health plan payment issues that are equally troubling and merit scrutiny.”
Acknowledgment of ACA Exchange Failures Reflects Reality
The memorandum lists several specific failures of the Affordable Care Act, each of which corresponds to research I have recently published through the Mercatus Center. First, the memo states that enrollment in the exchanges is “disappointing.” This is consistent with my research on ACA exchange enrollment, published last November and more recently.
Exchange enrollment is much lower than projected—less than half of original targets—and the risk pool disproportionally consists of older and less healthy people as younger and healthier people largely shun the coverage. After a disappointing 2016 open enrollment period, I wrote that the much larger increase in the individual mandate penalty did not cause nearly as many young and healthy people to enroll as expected. According to the Clinton memo, low enrollment results from “the lack of affordability for many Americans over 250 percent of poverty (who are getting little to no tax credit subsidy) and/or because they perceive the high deductible benefit to be not worth it (and are either unaware of mandate penalty or prefer it to entire premium payment).”
Second, the Clinton memo cites “significantly higher adverse selection than expected.” As the memo states, “it is becoming painfully clear that many of these plans underpriced their original premium as they assumed a broader, healthier risk pool.” This is also consistent with my published research which found that the only people signing up in large numbers either expect to use a lot of medical care or had incomes below 200% of the poverty line—about $24,000 for a single person—and qualified for large subsidies to substantially reduce both premiums and deductibles. Moreover, the law’s provisions requiring insurers to offer coverage to any applicant at a standard rate regardless of medical need led many people to wait until they needed to use medical care before enrolling. Insurers report that people have done this in droves.
Third and finally, the Clinton memo acknowledges that the risk corridor program, intended to transfer money from insurers that made profits selling ACA plans to those incurring losses, is “falling short.” Specifically the memorandum notes that the Obama administration has “neither the funds nor the authority to pay plans anywhere near the costs associated with medical claims that exceeded projections.” Although the administration appears to now be uncertain about whether it has such authority, Jennings’ acknowledgment is also consistent with my previous research on insurance company losses selling ACA plans. I estimate the risk corridor deficit—and potential taxpayer bailout through the program—to be $7.5 billion in 2014 and 2015.
Despite the failures, the administration continues to publicly express support for the law and its role in reducing the number of people without health insurance. It is important to note that roughly two-thirds of this net reduction has occurred through Medicaid expansion, and the per enrollee cost of the Medicaid expansion is nearly 50% above projections.
Clinton Policy Prescriptions Not the Right Answer
The Clinton memo also contained political messaging tips and policy recommendations, including expanding subsidies to help make insurance more attractive and extending and expanding the risk corridor program. Jennings wrote that “[t]he Democratic Leadership and the White House [were] quietly trying to address the risk corridor problem.”
Secretary Clinton has proposed a major new cost-sharing tax credit; in fact, it is the central element of her health care plan. According to an analysis from the Commonwealth Fund, the annual cost of this credit would exceed $90 billion. The proposal would move policy in the wrong direction— hiding more health care costs by dispersing the bill to taxpayers.
More government spending—either through new subsidies or insurer bailouts—are not the answer to the ACA’s failing exchanges. The central problem that policymakers should address are the rules and mandates that have driven up the price of insurance, particularly for younger and healthier individuals, and created perverse incentives for people to wait until they are sick to purchase coverage.
Team Clinton’s private assessment of the problems bedeviling the ACA—that enrollment has fallen short of expectations, that the participant pool is much sicker than expected, and that the ACA’s risk corridor program lacks sufficient funds and authority to bail out participating insurers—markedly resembles that of skeptical outside analysts. Given the frequent positive spin applied to the ACA by its most ardent advocates, it is reassuring to see that behind the scenes its enormous problems are being recognized. We should all hope for a more public acknowledgment of the ACA’s problems as well as a commitment to repairing, and not papering over, the damage it has caused.
Brian Blase, Contributor @ Forbes