How should we judge subsidized enrollment numbers?

by Galen Benshoof

In early 2013, the Congressional Budget Office made a series of predictions about exchange enrollment. In this document, they estimated that 7 million people would enroll in the first year, 6 million of whom would receive tax credits to offset the cost of coverage (for a subsidy eligibility rate of 86%).

With Health and Human Services’ recent release of enrollment data, substantial attention in the media has focused on CBO’s estimates. For instance, an article in Kaiser Health News reported that subsidized enrollment was “far lower than the 90 percent projected in the first year by the Congressional Budget Office.” In the National Review,a conservative critic of the ACA speculated about the implications of coming in below CBO’s estimate. The 86% figure seems vital to the analysis presented in these treatments and others.

But is it actually a meaningful benchmark?

Unclear methodology

Because CBO did not divulge its methodology, it isn’t evident what factors are considered in the subsidized and overall enrollment estimates. In the below table, I’ve pulled figures from the last page of CBO’s analysis and added a line showing the proportion of subsidy-eligible enrollment out of total enrollment. (Middle three columns are cumulative, and numbers are in millions of enrollees)

subenroll

Oddly, their analysis doesn’t mention an important metric: how many total residents actually qualify for subsidies. They present how many people they think will enroll in subsidized plans, but they don’t state what data they use to determine how many people areeligible for subsidized plans.

Fortunately, the Kaiser Family Foundation gives us these data. Here, KFF provides figures on eligibility, which aren’t really “estimates” in the manner of CBO’s figures. Using survey data on income, KFF calculated how many people fall below 400% FPL (with additional methodologies you can find in the document). On page 3 they show us the number of people who currently qualify for subsidies relative to the overall population allowed to purchase insurance in the new exchanges. Nationally, among plan-eligible residents, 17.2 million people qualify for subsidies and 11.4 million do not (for a 60% eligibility rate).

Now, look at the second column above, keeping in mind that KFF’s number is only a snapshot of one point in time. Starting in 2016, the subsidized enrollment increases well above 17.2 million. This means one of two things: either KFF and CBO’s eligibility calculations use wildly different formulas, or the size of the subsidy-eligible group increases dramatically over the first few years of the exchanges.

It’s unclear whether CBO believes that the size of the subsidy-ineligible population grows over those same years. Their enrollment estimates obviously increase, from 1 to 5 million, but it’s impossible to tell whether that has more to do with low initial enrollment or the changing nature of the population in question. I can’t think of a reason why the number of people above 400% FPL would radically shrink in the next few years.

Let’s assume for the sake of analysis that the size of the group does not change, and that CBO’s subsidy-ineligible estimate is similar to KFF’s of 11.4 million. With this number in mind, refer to the third column above: CBO seems to believe that less than half of subsidy-ineligible residents will obtain coverage through the marketplace over the foreseeable future. Assuming KFF’s number is reliable, why would such a high proportion of that group steer clear of the exchanges?

It seems like a very curious projection, for which they provide no rationale. Perhaps people ineligible for financial assistance will be more willing to pay the tax penalty for forgoing insurance than those who qualify. Or maybe people just above and just below the subsidy cutoff of 400% FPL are more likely to face Bronze premiums of 8+% of household income, thus exempting them from coverage requirements. I honestly don’t know.

So far, CBO’s projections seem to raise more questions than they answer.

It’s just a guess

There are few precedents for the ACA in recent history, with its combination of private products and subsidy schemes. In calculating its estimates, CBO probably considered the enrollment patterns of other programs, such as Massachusetts’ reforms and Medicare part D. But considering blistering partisanship, floods of misinformation, and a very complicated law, the ACA is in a universe of its own. As such, estimates are going to be really tricky.

And that’s exactly what CBO’s first-year enrollment projection is—an estimate, rather than a goal. The Obama Administration occasionally refers to it, but they didn’t come up with the initial figure. Similarly, the 86% number is nothing more than a guess of who might enroll when. It’s not a normative judgment of how many subsidy-eligible people should be enrolling, or how much of that population the Administration wants to enroll.

The subsidy estimate also turns out to be a bit flimsy. To accurately predict subsidized enrollment, you probably first have to nail the overall enrollment. Thus getting the subsidy estimate right is doubly hard, making the 86% figure not much more than a shot in the dark. Given all of the issues with healthcare.gov and some state exchanges, first-year enrollment may end up far different than initial estimates. So why would we want to use a subsidy estimate that depends entirely on enrollment predictions that are likely to be wrong?

Contrast this with KFF’s presentation of overall subsidy eligibility, rather than projected subsidized enrollment.

Large state differences

Another problem with the CBO subsidy projection: it’s a national average. They didn’t break out estimates at the state level, which is unfortunate, because we see tremendous variation among states, in terms of eligible population, socioeconomic breakdown, enrollment capacity, and more. Furthermore, states surely have different goals for themselves. With all of that in mind, a national average becomes less relevant.

But why should we care?

There are at least two three reasons to worry about low enrollment of subsidy-eligible consumers. One is the balance of the risk pool. Maybe we think that people ineligible for subsidies are more likely to be sick, meaning that high rates of such enrollment might be bad news for insurers.

However, I know of absolutely no evidence to suggest that sick people are less likely to qualify for subsidies. In fact, if many of the new applicants are “canceled policy” shoppers coming from the previous incarnation of the individual market—which denied many sick people the ability to enroll—that could be good news for the exchanges’ risk pools.

Second, and relatedly, young people are most likely out of all ages to qualify for subsidies. Few groups have been more aggressively courted and targeted by the Administration and advocacy groups. If we are seeing low levels of subsidized enrollments, that could mean that messages stressing financial assistance aren’t reaching enough young people. Demographic data from HHS and insurance companies will ultimately show whether that is the case.

The third reason pertains to social justice. The subsidies exist to enable people with financial need to afford health insurance. If they aren’t enrolling in the first place, that would be bad for the ACA and for our health system in general. If they are actually enrolling, but not taking advantage of the generous financial assistance available to them, that would be an implementation failure, and something we would want to rectify on the tax-filing end.

Clearly it’s important to keep tabs on subsidized enrollment. But what should we weigh such enrollment numbers against? On one hand, we have CBO’s figures, for which we know neither the eligibility formula nor the enrollment modeling. On the other, we have seemingly reliable 2013 eligibility numbers and a clear methodology from KFF. Media attention has focused on the CBO number, but KFF offers a much better benchmark. The survey data certainly isn’t perfect, as households’ income fluctuates over time, but it’s as accurate of a picture as we have.

For all of these reasons, when talking about “low enrollment” among consumers who qualify for subsidies, we need to think about such enrollment relative to the overall population eligible for a marketplace plan. Using KFF’s national eligibility estimate of 60% is good. Looking at individual states to see how well they are reaching residents in need is even better.

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Galen is a Master in Public Affairs candidate at Princeton University’s Woodrow Wilson School, where he focuses on health policy. Find him on Twitter: @benshoof.

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