Government spending on Obamacare premiums has raced past its per-person spending on Medicaid expansion, and the gap is poised to increase—a trend that has some policy experts shaking their heads over the long-term economic picture and at least one major insurer questioning the sustainability of the individual market.
This year, federal dollars going to exchange premium subsidies more than doubled from 2014 and the Congressional Budget Office projected they will nearly double again over the next decade. States are pursuing reinsurance waivers and even eying further expanding Medicaid—where the federal government shoulders nearly all the cost—through a public option to lower expenses for the people covered through the exchanges. But congressional gridlock over the Affordable Care Act’s future will likely drive the cost trend forward.
Data from the CBO and the CMS cast the individual market as a costly second version of Medicaid, although low-income people who opt to use their subsidies for bronze plans get little more than catastrophic coverage because they can’t use cost-sharing reduction payments for help with co-pays and high deductibles.
The CBO’s latest projections from earlier this year show government paying out an average of $6,300 annually for every subsidized enrollee in fiscal 2018. It estimates that number will rise to nearly $12,500 in 2028. In contrast, Medicaid spends $4,230 per non-disabled adult, set to inflate at 5.2% annually to just over $7,000 per person in 2028.
UnitedHealthcare leveraged these numbers for an issue brief criticizing the exchanges as “significantly more costly and less sustainable than envisioned” and touting Medicaid expansion as more stable. The insurer has loaded up on its government business while ramping back its presence on the state exchanges, and in the white paper predicted more instability for the individual market.
“Exchange beneficiaries, as well as the remaining uninsured, would gain the most from being in suitably managed state-based public and private market structures which are more stable, efficient, and effective than exchanges,” the company stated in the brief from May of this year.
On-the-ground examples tell the same story of climbing government costs. The subsidy calculator on HealthCare.gov shows the average premium tax credit to assist a 30-year-old nonsmoker, earning $17,600 per year, more than doubled from $2,178 in 2014 to $4,448 for 2018.
CMS data concur. After a 2% increase in 2015, the government share of individual market premiums rose steadily year over year: jumping 10% in 2016 to 32% in 2017 and another 45% this year. Since 2014, the government is paying 114% more in subsidies.
Joseph Antos, a health economist at the right-leaning American Enterprise Institute, said the exchanges are stable, but at an “unnecessarily large cost to taxpayers.” He also doesn’t see a fix for the cost anytime soon.
“No one in Congress or the White House seems worried about the debt or deficit,” Antos said. “Moreover, unless Republicans keep control of Congress, gain more Senate seats, and reach agreement among themselves on policy, we will continue to drift along as we have.”
The same goes if Democrats take control of Congress and nab the White House in 2020, he added, since it isn’t yet clear what a Democratic administration would want to accomplish on healthcare.
“Liberal groups took a while to understand how the ACA subsidies work, and no longer want CSRs to be paid,” Antos said. “That won’t change after three years of excessive ACA subsidies.”
Ultimately, any big enrollment swell for Obamacare would be expensive and difficult, but that won’t necessarily shift the conversation.
“Except for some refinements and corrections on the ACA there isn’t a big goal left that Democrats can rally around,” he said.
While insurers blame the premium hikes on federal uncertainty, analysts say ultimately the market has settled into its shape and size, between 10 million and 12 million people, with a peak of 12.6 million in 2016. About 8 million participants are subsidized according to the CBO, and Deep Banerjee, who looks at the exchanges for Standard & Poor’s, said he hasn’t run a full analysis for 2019 but expects open enrollment to be roughly the same next year compared to this year because of the Trump administration’s expansion of short-term plans and zeroing out of the penalty for the individual mandate.
The individual market is a very different animal than Medicaid. Its cost increases reflect the volatile reactions to congressional policies and moves by the Trump administration. The 2018 surge in Obamacare subsidies followed President Donald Trump’s cutoff of the cost-sharing reduction payments (CSRs) for low-income enrollees that insurers are still required by law to pay. Insurers priced CSRs into the silver plans that serve as the benchmark for calculating federal subsidies. This spiked silver plan premiums for the unsubsidized enrollees and financial help for the subsidized.
Still, this year’s spike wasn’t the first. In 2017, government spending for the fictional 30-year-old beat the previous year by 27%, a 41% increase since 2014.
Supporters of the Affordable Care Act defend its subsidy structure as the unbreakable backbone of the law, while critics say tying premium tax credits to silver plans shields insurers at the expense of the government and the unsubsidized. Congress’ attempt in late 2017 and early 2018 to fund a reinsurance pool and restore CSR payments fell apart and currently neither party seems interested in trying again after November’s elections.
