ObamaCare Failing the Middle Class

 

The hits just keep on coming. In 2010, House Speaker Nancy Pelosi famously said about ObamaCare, “We have to pass the bill to find out what’s in it, away from the fog of controversy.” She was convinced people would love ObamaCare once they learned more about it. She was wrong.

More people oppose the law than favor it by double-digit margins in nearly every poll. The reasons are becoming clearer, contrary to Pelosi’s predictions.

First, there’s the declining enrollment numbers. Earlier in 2015 the government claimed 11.7 million people newly enrolled in ObamaCare during the second open-enrollment period. But by late summer, that number was down to 9.9 million “effectuated coverage”, meaning enrollees who were up to date on their nominal share of the premium after subsidies, according to The Wall Street Journal.

The Congressional Budget Office (CBO) estimated two years ago that about 13 million would enroll in 2015, and its most recent revision in March of this year still estimated that number at 11 million. Despite this erosion of support, the CBO projected ObamaCare will more than double in size in 2016 to 21 million, which is necessary to stabilize the insurance markets to prevent catastrophic losses and avoid skyrocket premium prices that could lead to a “death spiral” in the industry.

But recently HHS Secretary Sylvia Matthews Burwell announced a revision of these projections downward to only “9.4 to 11.4 million effectuated enrollees in the Marketplace at the end of 2016.” The implications of this announcement and these enrollment numbers was discussed in earlier posts (White House Concedes ObamaCare Failure) this month.

Second, a new study by Wharton Business School economists Mark Pauly, Adam Levine and Scott Harrington estimate how much better or worse off the non-poor uninsured are under ObamaCare. They measured the cost of the plans, the benefits of consuming pre-paid medical care and out-of-pocket payments without obtaining coverage.

The authors concluded: “Even under the most optimistic assumptions, half of the formerly uninsured take on both a higher financial burden and lower welfare, and on net average, welfare for the uninsured population would be estimated to decline after the ACA if all members of that population obtained coverage.”

Economist John Goodman simplifies their conclusions thus:

  • For every person who has obtained insurance in the ObamaCare exchanges, there are two other eligible people who have not enrolled.
  • When people who were previously insured in the individual market obtain insurance in the exchanges, on the average they are worse off.
  • When people who were previously uninsured obtain insurance in the exchanges, they are also worse off.

 

The Wall Street Journal editorial board summarizes thus:

In other words, ObamaCare harms the people it is supposed to help. This is not a prescription for a healthy, durable program.”

Goodman also points out that 83% of those purchasing insurance on the exchanges have incomes below 250% of the poverty level and above that level enrollment drops sharply. A study by Avalere Health shows the declining percentage of those purchasing insurance as the amount of government subsidy declines. (See chart below.)

Plan Selections by Income

How do we explain these results?

Goodman explains that at almost every income level, the uninsured have implicit insurance – someone else pays most of their medical bills. On the average, they consume less than half of the medical care consumed by people with insurance. And they pay only about 25% of the cost of the care they do consume. When they obtain insurance in the exchange, however, they give up this de facto insurance and obtain the coverage ObamaCare requires.

If we look at the second lowest cost Silver plan and the lowest cost Bronze plans offered on the exchanges, the Wharton economists calculate the premium that must be paid (net after subsidies) and the out-of-pocket expense incurred once people get insurance and use it. At almost every income level people end up spending more.

The table below estimates welfare losses for people at different income levels who purchase health insurance on the exchanges. It shows those previously uninsured as well as those with previous insurance purchased in the individual market. The only people better off with ObamaCare are below 175% of the poverty level.

Average Change in Welfare

The Wharton economists summarize their study findings:

“Our estimates indicate that the majority of the previously uninsured would be subject to substantial negative financial impacts by purchasing insurance on exchanges in response to the Affordable Care Act. Impacts on welfare are less stark, with potential gains at low income and high-risk levels.

            However, many of the non-poor formerly uninsured are estimated to be worse off because the subsidies are not large enough to offset their new obligation to pay part of the premium along with required cost sharing. This loss contributes to the relatively low estimated take-up rates to date for exchange coverage for persons who do not qualify for large premium subsidies and cost sharing subsidies.”

 

In other words, the American people have figured out that ObamaCare is a poor value and they refuse to pay for it out of their own pockets.

 

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