Health and Economy Baseline Estimates

In April, the first season of open enrollment for the Health Insurance Marketplace (Marketplace) implemented by the Affordable Care Act (ACA) concluded. Despite initial problems with the website roll-out and some remaining infrastructural challenges, the Marketplace has largely been able to provide a viable market for commercial, non-group insurance—also known as the individual market. The Center for Health and Economy (H&E) has updated its estimates of cost to the federal budget, insurance coverage, plan choice, and premium landscape of health insurance for Americans under the age of 65.

KEY FINDINGS:

• Next year, premium changes in the individual market will vary by plan type. Some plan designs are estimated to see total premiums—not accounting for subsidies—fall by as much as 7 percent, while others are estimated to increase up to 4 percent. The declines in premiums are the result of a growing risk pool; premiums are expected to grow by 2 to 6 percent annually between 2017 and 2023.
• Average subsidized premiums are expected to fluctuate between 2014 and 2016, as a result of a growing risk pool and increased participation of the young and healthy. After 2017, average subsidized premiums are expected to increase by 6 to 10 percent annually.
• The individual market includes an estimated 35 million members in 2014, with 6 million lives covered through subsidized insurance offered in the Marketplace. Subsidized enrollment is projected to grow to 25 million by 2016, and the total size of the individual market is estimated to expand to 50 million.
• As premiums and health care costs rise, plans chosen in the individual market are expected to shift towards lower cost options. High subsidized enrollment in silver plans is projected to fade after 2014, as enrollment grows among households that are eligible for subsidies but not silver-plan cost-sharing.
• Average premium subsidies are projected to fall from $9,000 in 2014 to $6,100 in 2016 as the risk pool in the Marketplace grows and higher income households enroll.
• The coverage provisions of the ACA and Medicaid for the non-elderly are estimated to cost the Federal government $3.33 trillion over ten years.

INSURANCE COVERAGE

		2014	2015	2016	2017	2018	2019	2020	2021	2022	2023
Individual Market		35	42	50	49	48	48	48	47	47	47
	Subsidized Insurance	5	15	25	25	25	25	25	25	24	24
	Unsubsidized Insurance	29	27	25	23	23	23	23	23	23	23
Employer Sponsored Insurance		151	149	147	147	148	148	148	148	147	147
Medicaid		42	46	47	47	47	48	48	49	49	49
Other Public Insurance		2	2	3	3	3	4	4	5	6	6
Total Non-Elderly Population		275	276	277	279	280	282	283	284	286	287
Total Insured1		230	239	247	246	247	247	248	248	249	250
Uninsured1		45	37	31	33	34	34	35	36	37	37
1 All insurance coverage estimates refer only to the under-65 population.

H&E estimates there will be 230 million non-elderly US residents with health insurance in 2014—84 percent of the total non-elderly population. Estimates of health insurance coverage encompass 4 primary categories: the individual market, employer sponsored insurance, Medicaid, and other public insurance. The individual market is divided into two subsets: subsidized coverage purchased through the Health Insurance Marketplace, and unsubsidized coverage, which is comprised of similar insurance plans purchased directly from the insurer or through the Marketplace without financial assistance. H&E makes no distinction between unsubsidized enrollees through the Marketplace and households that purchase individual market insurance directly from an insurer. The initial rollout of the Marketplace and Medicaid expansion is benchmarked using the Congressional Budget Office (CBO) estimates of uninsured, Medicaid, and health insurance marketplace enrollment for 2014 through 2016.[i]

By 2016, the number of insured, non-elderly Americans is projected to increase to 247 million—89 percent of the total non-elderly population. The increase in insured Americans is primarily the result of three factors: the expansion of Medicaid, the continuing implementation of the subsidized Marketplace, and an increasingly costly tax penalty for remaining uninsured. The population of non-elderly Medicaid beneficiaries is estimated to be 42 million in 2014. And by 2016, Medicaid will cover 47 million non-elderly Americans. These estimates are subject to the uncertainty of each state’s decision regarding Medicaid expansion.

The individual market is estimated to expand from 35 million covered lives in 2014 to 50 million by 2016, driven largely by the rollout of the Marketplace. The increase in coverage through Medicaid and the individual market is in part offset by a decrease in those insured through employer sponsored coverage. As the individual market becomes more robust, more residents are expected to opt for plans offered in the Marketplace or directly by insurers in lieu of employer sponsored plans. Some employers may also decide not to offer health insurance coverage as an employee benefit.

As seen in the table above, a slight increase in the number of uninsured occurs after 2016. This increase is due to the phase out of the risk protections for insurance companies and the discontinuation of non-qualified health plans currently available in the market. These changes lead to a slight increase in uninsured in 2017, and year-on-year premium increases that lead to higher uninsured numbers later in the analysis period.

PREMIUMS

Estimates of the subsidy eligible premiums available in the Marketplace are calculated using publicly available data on plans offered in the 36 Federally Facilitated Marketplaces. Premium estimates for unsubsidized health insurance are calculated from a sample of plans available on ehealthinsurance.com. In both cases, H&E uses the default age rating curve put forth by the Department of Health and Human Services to impute the applicable premium for a particular household. For simplification and comparability, H&E uses a standard family size of four (two adults and two children) when estimating family premiums. Subsidy payments and tax revenue are adjusted for the appropriate average family size in budget impact estimates.

Subsidized insurance plans offered in the Marketplace are divided into four categories—Platinum, Gold, Silver, and Bronze—that correspond to four approximate actuarial values—90 percent, 80 percent, 70 percent, and 60 percent. The actuarial value refers to the expected percentage of annual medical expenses covered by the insurance plan.

It is important to note that, because of additional cost-sharing assistance, the plan designs categorized as Silver vary significantly in actuarial value across different income categories. For enrollees in the marketplace that earn between 100 and 150 percent of the Federal Poverty Level (FPL), Silver plans have an actuarial value of 94 percent, the highest of any plan offered in the Marketplace. For enrollees earning between 150 and 200 percent of FPL, Silver plans have an actuarial value of 87 percent, and for enrollees earning between 200 and 250 percent of FPL, Silver plans have a 73 percent actuarial value. H&E estimates the unsubsidized premiums for these high-value silver plans using the true actuarial value of the plan, rather than the Silver plan price.

Unsubsidized insurance plans, purchased in the Marketplace or directly from an insurer, are similar in design and price to those eligible for subsidies. The Affordable Care Act requires that all health insurance plans meet certain requirements in order to certify as qualified coverage. However, some non-qualified health plans already in existence are available to consumers until 2017. Before the qualified health plan regulations are enforced, lower cost plan options are available to consumers who seek unsubsidized health insurance coverage outside of the Marketplace.

H&E assumes an underlying health insurance cost growth of 6 percent throughout the ten-year window. Actual year on year premium growth estimates vary as a result of changes in the enrollment mix and size of the insured risk pool. For example, the growing size of the individual market between 2014 and 2016—associated in part with increased participation of the young and healthy—leads to estimated declines in average premiums for many plan design categories. After 2017, premiums in the individual market are projected to grow annually at rates closer to the underlying growth rate of 6 percent. Due to growing applicable income contribution rates, subsidized premium growth for some plan designs is expected to exceed the underlying health insurance growth rate.

PLAN CHOICE

H&E uses the subsidized and unsubsidized Marketplace enrollment in each metal level after the first year to calibrate plan preferences in the individual market and estimate plan choices throughout the ten-year analysis window.

H&E estimates that the large enrollment in Silver plans in 2014 among subsidized insurance plans will give way to higher enrollment in Platinum, Gold, and Bronze plans in 2015 and 2016. In the first year, the large majority of Silver plan enrollment is made up of households eligible for extra cost-sharing benefits. As the risk pool grows to include more households that are eligible for premium credits but not cost sharing assistance (earning between 250 and 400 percent of the federal poverty level), the distribution of subsidized enrollment among the four metal levels is expected to become more evenly distributed.

Beyond 2016, lower cost insurance plans are estimated to gain market share, shifting away from more generous plans in response to the steadily rising cost of health insurance. Bronze plans are expected to dominate the individual insurance market by 2023. Catastrophic coverage, another popular low cost option, is only available to adults under 30 years old under the ACA. However, that provision is not enforced until 2017.

SUBSIDIES

Under the ACA, eligible households may purchase coverage on the Marketplace for a specified percentage of household income that ranges from 2 to 9.5 percent, depending on income. The price of the premium in excess of that amount is paid for by a federal subsidy. H&E estimates that the average subsidy for an eligible enrollee in the exchange will fall from a high of $9,200 in 2014 to $6,000 in 2016. During the first year of implementation, the Marketplace is estimated to have encouraged subsidized enrollment primarily among those who receive the highest benefit through premium credits and cost-sharing assistance. By 2016, more households that receive only small subsidies will either make the decision to purchase insurance rather than pay the penalty, or switch from other unsubsidized insurance plans, leading to lower average subsidies.

The average subsidy calculation includes cost-sharing assistance, which is only available to enrollees earning less than 250 percent of the Federal Poverty Level. H&E estimates the cost-sharing portion of subsidy spending by calculating the difference between the actuarially accurate premium for the modified plan design and the average cost of a Silver plan absent cost-sharing assistance.

Beyond 2017, the average per-person subsidy in the exchange will increase annually by 3 to 5 percent. The ACA includes mandated adjustment provisions to prevent subsidy spending from rising uncontrollably. H&E estimates the mandated adjustment using methodology recently finalized by the Department of Health and Human Services; the required contribution percentages of subsidized Marketplace enrollees will grow by the ratio that per-person employer sponsored premiums growth exceeds per-capita GDP growth. Over the ten-year analysis period, the required contribution percentages of subsidized enrollees are estimated to increase by about 16 percent.

BUDGET

H&E estimates the impact on the federal budget of the major health insurance coverage provisions of current law with regards to the non-elderly population. Budget impact estimates do not include estimates for non-ACA tax expenditures encoded in current law, such as the employer sponsored health insurance tax expenditure.[ii] H&E does, however, estimate the additional revenue gained by removing the tax exclusion for high-cost employer sponsored insurance plans implemented by the ACA, known as the Cadillac tax.

Medicaid coverage and expenditure estimates are calculated based on the number of states that had chosen to expand Medicaid by May 1, 2014. These predictions are sensitive to future state-level decisions on expansion as well as new program waivers that alter the design of a state’s Medicaid program.

Over the next decade, H&E estimates that non-elderly Medicaid enrollment and the Health Insurance Marketplace will cost $3.8 trillion. The cost is partially off-set by $322 billion in increased revenue through the tax on high-cost employer sponsored insurance, the individual shared responsibility tax, and the employer shared responsibility tax. The ACA introduced a number of taxes that are not directly related to the health insurance coverage of the non-elderly population. In 2012, CBO estimated non-coverage provisions of the ACA to reduce the deficit by $1.28 trillion over 10 years.[iii]

PRODUCTIVITY AND ACCESS

In an effort to shed light on how health care policy and consumer choices affect health care quality, H&E estimates two measures: the Medical Productivity Index (MPI) and the Provider Access Index (PAI). Health insurance plan designs are associated with varying degrees of access to desired physicians and facilities as well as incentives that promote or discourage efficient use of resources. H&E estimates each index by attributing productivity and access scores to the range of plan designs available and exploits changing plan choices to project the evolution of health care quality.

The Medical Productivity Index is designed to reflect the expected gains in health status in return for medical expenditures. Plan designs that encourage patients to consider the price of treatment when making health care decisions, such as high deductible plans, are ascribed high MPI scores, while plans with low cost-sharing requirements or first dollar coverage are ascribed low scores. The index ranges from a low of 1.0 to a high of 4.0.

The Provider Access Index is designed to reflect the availability of primary and specialty physicians and facilities. Plans with large networks, such as Platinum plans offered in the individual market, are ascribed high scores for providing exceptional access. Bronze and other low cost plans that afford access only to limited networks are ascribed low PAI scores. The index ranges from a low of 1.0 to a high of 5.0. 

UNCERTAINTY IN THE PROJECTIONS

The Center for Health and Economy uses a peer-reviewed micro-simulation model of the health insurance market to analyze various aspects of the health care system.[iv] And as with all economic forecasting, H&E estimates are associated with substantial uncertainty. While our estimates provide good indication on the nation’s health care outlook, there are a wide range of possible scenarios that can result from policy changes, and our current assumptions are unlikely to remain accurate over the course of the next ten years. For instance, the uncertainty surrounding the implementation of the Affordable Care Act and similar obstacles facing the implementation of new health care overhauls affect the accuracy of short-term coverage estimates. Importantly, we do not believe that the uncertainty in our estimates creates biased results. H&E attempts to depict an unbiased, middle -ground representation of the future should the policy and economic environment remain constant. While we attempt to project the most likely scenarios, actual events may differ significantly from our predictions.

 

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