How Many Under 35s' Do We Need?

Conservatives have been relentless in their confident prediction that the young and healthy will not sign up for Obamacare. George Will, and many others, state categorically that to do so would be "against their interests". The penalty is small, relative to the cost of insurance. They don't think they need it. So they won't buy in.

I have argued against this, saying that they haven't bought insurance up until now because they couldn't afford it, for the most part - not because they didn't want it. But something I agreed with Conservatives on - if they don't sign up, the risk pool will be unbalanced, and the program could break down.

Here's the key question: How many under 35s' do we need? The target is 2.7 million, out of a total forecasted Exchange enrollment of 7.0 million, or 38.6%. In an earlier blog, Ezra Klein was also wondering where the 2.7 million target came from, and he realized, looking at demographics, that about 39% of the uninsured are under 35 - hence the 39%, or 2.7 million target.

But do we need that many? Ezra said he didn't know, and that the answer needs to come from an insurance analysis of the overall risk pool. To date, I have not seen such an analysis.

So today I began poking around, and what I found out is extremely encouraging:

• The Risk Pool - I assumed the relevant risk pool was the 7.0 million target for the Exchanges. If I'm reading research correctly, that's wrong. The risk pool is the entire individual (non group) market, both on and off the Exchanges - so 14.0 (current Individual market) plus 7.0 (expected in 2014 as newly insured on the Exchanges), or 21.0 million. So new signups from the uninsured is not the only source for young, healthy folks to balance the pool. The existing individual market must already have a lot of healthy folks.
• Is Current Individual Market Pool Already Balanced? - If it is, then the full increment must itself come in as a balanced pool. But the fact is that policies in the individual market are individually underwritten in all but a few states; and policy pricing is based on individual by individual risk assessment. So from the outside, we can't know if the existing pools have been balanced in the past. We do know that insurance companies, in preparing their Exchange pricing bids, have made a risk assessment of the new pools, combining existing policy holders with new Exchange market entrants.And remember: most everyone was surprised that the bids came in as low as they did.
• What about the 3-5 million people whose policies were cancelled? - These policies were ones that did not conform to the ACA's Essential Benefits provisions. In other words, these were bare bones, catastrophic policies. And who's likely to buy policies like these? Healthy folks - and for the most part, people who don't think they need much insurance. Leave out any partisan positioning - what will these folks do? Will they moan and groan, and finally bite the bullet and buy the new, more complete insurance policies? Or will they drop coverage and pay the penalty? I predict that 80-90% will buy. And when they do, we'll have a very healthy pool.

I think we have lots of room, that the individual market (after the folks cancelled sign back up) is an unusually healthy risk pool, and it would take a veritable tornado of newly added sick people to unbalance it and cause a "death spiral". What's the needed target? Don't know - but it's way under 2.7 million.

Taking on Water

We're taking on water. Those of us on the blue, Obama team have to be honest. We're in a rough patch.The website mess is an unforced error, a self-inflicted wound. The "You can keep your health plan." promise was a mistake, as Robert Gibbs admitted today. We will recover, for sure, but November could be tough. If the website fix is successful, and the policy cancellations run their course by the end of the month, we should start moving positive by mid-December.

Before then, we have to absorb all the upset and pain experienced by people in the individual market whose policies get canceled. There are 12-15 million people in the individual market; half to three-quarters of these will have their old plans cancelled. Since the cancelled plans are "non-conforming (with ACA)", i.e., bare bones plans, almost all of these people will have to pay more. Probably half of them, or more, will be eligible for subsidies, but they need a working web site to figure that out. I assume this will happen in December (a working web site), thus diminishing the cries of pain.

But many will pay more, even with subsidies. As Jonathan Cohn shows in a wonderful article this morning, some of the victims of this "October surprise" will end up liking the change, after it is fully explained, because they will end up with real insurance as opposed to "fake" insurance. But a sizeable number will not like being told they have to pay more, and that they must carry more insurance than they think they need (Pregnancy coverage for single males; mental health coverage of people convinced they will never need such a thing, etc.). And thus the "middle-class eroding, liberty destroying" Obamacare meme will live on, in all its gory glory.

But this, too, shall pass. The cancellations should end by very early December. The cries of anguish will be heard, absorbed, and then they will diminish, falling to near zero by year end. And that's when the Blue Team will make its run for the Gold - from mid-December thru March 31, as the web site becomes fully functional, and people get serious about their insurance purchase decisions.

Will we hit the 7 million target Exchange enrollment number by March 31? I'm not sure. It's possible, but a long way from certain. We will actually be helped by the folks receiving cancellation notices (6-7.5 million), who are not rolled over into a new policy by their insurance company, and have to use the Exchanges. How many? My guess: 3-5 million. If half of these people (who have gotten used to having coverage) decide to buy on the Exchanges, this is 1.5-2.5 million people that may not have been actively considered as part of the original 7 million target, which I believe was taken completely from the uninsured. And a good number of these people are under 35, which will help us make the key goal of about 40% of signups being under 35 (2.7 out of 7 million is 38.6%).

We don't have to hit 7 million by March 31. But we need to hit near the 40% under 35 target to ensure our insurance pool is balanced. We'll know all of this by the end of March, with pretty fair predictions much sooner, say by early February.

Plenty of time for Team Blue to take it to the GOP in the November mid-terms!

Obamacare More Than Enrollment

(Tom Scully, former GOP official, now Obamacare investor,  NYT Magazine)

Tom Scully (pictured above) worked on healthcare (among other things) for Bush I and was Director of the Center for Medicare and Medicaid Services (CMS) for Bush II. He is now Founder and CEO of naviHealth, whose website says:

naviHealth is a post-acute care (PAC) benefit manager partnering with risk-bearing healthcare organizations to lower PAC costs by empowering the patient, improving care coordination, and using a proven data and technology driven approach to enable PAC navigation.

Fascinating article. The first one I have seen like it. There will be more. A great many more. Opposition to Obamacare has been so absolute on the Conservative side that normally astute investment analysts have almost totally missed a very important fact set: The ACA is not just about enrolling the uninsured. It's a multi pronged effort to control healthcare cost inflation by shifting provider incentives from the fee-for-service model, to a coordinated-care, values-based model.

For the most part, business has - up until now - been listening to the GOP: the program is rotten through and through; it's a Government takeover of healthcare; it will restrict choices, lower healthcare quality, and raise premiums and overall costs; and it is founded on a losing economic proposition that the under 35s' will sign up, against their economic interests, since the penalty is way too low to make them become insurance buyers.

All of this is mostly wrong. There will be some restricting of choices - viz. the folks having their bare bones policies cancelled. Also possible are some supply bottlenecks - shortage of doctors in some areas - as the delivery system reacts and adjusts to the increased demand. But most of the other critiques are just wrong. The most important error is the GOP certainty that the young will not sign up, thus dooming the program to a "death spiral" of rising premiums.

Once businessmen, like Tom Scully, figure out that Obamacare isn't going anywhere, that it will be with us for a  long time, they will start to look for opportunities to invest. And the name of the game will be cost containment: how to help 1/6th of our economy, the healthcare sector, shift from a quantity of service model (individual units of service billed individually) to a quality and value model (pay more for better quality; give rewards for reducing system utilization or complexity - what Tom Scully and naviHealth are attempting).

A huge part of the US economy is moving into a time of conscious, intentional market disruption, and as any economic historian will tell you, when markets are disrupted and basic business models are changed, there is good money to be made by those able to see what's trying to emerge. The initial disruption caused by ACA is showing up in the insurance market, not the medical delivery system itself. But the ACA is chock full of "test and then scale" ideas for cost containment in the delivery system itself.

There are three ways to cut costs: change the price of medical care; reduce utilization of the medical system; and lower the complexity level of how patients are treated when they use the system. Most efforts in the past have focused on controlling price - reducing payments to hospitals, doctors, etc. This has distinct and well known limits. And because there was not much of this in the ACA, pundits concluded that there was no effective cost control that would come out of the bill.

What they missed completely was the very large variety of tests the bill authorized, looking to test ways of reducing system utilization and complexity: keep people healthier, so they don't need the system as much; like Tom Scully, work with acute care patients and support them post-op, so they don't need readmission to the hospital; organize the independent medical silos into Accountable Care Organizations that are rewarded in "bundled payments", and who make more money by keeping their patients healthy; use Electronic Medical Records to give all providers the same information about patients, and thus reduce unneeded tests, etc.

This is why healthcare costs are coming down. There's a revolution going on. The healthcare system is finally learning how to reward providers for not using the medical system,  in other words, for keeping people healthier.

This is a big deal. This is where Tom Scully is placing his chips. Many others are doing so as well. Healthcare costs will continue to moderate, eliminating our long term deficit/debt problem. Conservative anger over Obamacare has kept the country and some of its business leadership from seeing the seeds of transformation the ACA's many test and scale provisions have already launched.

And by the way, this is what the Independent Payment Advisory Board (IPAB) is about. Not a Death Panel. An efficient mechanism for bringing to scale methods that have proven out in tests.

Hang on. This promises to be quite a ride.

Tom Scully

This is a BIG DEAL!

Most of these folks ended up in Medicare (about 85%), but my guess is the 41% figure will also be pretty close for the under 35s' share of health plan purchases. Here's the Healthier Kentucky site, so you can follow the progress over time.

38.6% signup from the under 35s' is the enrollment percentage for this critical group: 2.7 million target for under 35s' out of total Exchange target of 7.0 million. If we hit this "mix percent", we should have a balanced risk pool, thus avoiding premium spikes next year or any "death spiral". 

This is early evidence only. And it's not enough. But it's a good sign.

The only real argument Conservatives have ever had against the program is that the under 35s' won't sign up, leaving the risk pool unbalanced towards the less healthy, leading to a premium death spiral, and the possible collapse of the program. 

I have long predicted that they would sign up, because the vast majority of the uninsured have incomes less than 200% FPL (about $23,000); they cannot afford insurance (though they would like it); and at that income level, the subsidies are hefty, making buying insurance affordable. The uninsured under 35s' are not, for the most part, the young urban professional earning $30-35,000, and feeling immortal. These are the folks that Megan McCardle, George Will, Yuval Levin, and many others must have talked to, or been thinking of, in making their declarations of absolute certainty that the under 35s' will not sign up "against their interest." They will sign up. Because it is most definitely in their interests.

There's an interesting sleeper element emerging: what will the folks, with the bare bones plans that are being cancelled, decide to do - once they get over being mad? I think they'll buy insurance on the Exchanges, even at a higher price. Some will deal with insurance companies directly. Many will go to the Exchanges. Many are under 35 and healthy. Signups from this very large group should ensure pool stability.

The ACA is going to launch on solid footing, which will become evident by Christmas, or sooner. Enrollments may take time, like they did in Massachusetts. They may even have to delay the penalty schedule for a year, or issue a Policy Notice after March 31, saying that anyone certifying that he/she could not access the Marketplace will not be subject to the penalty. There is much Sound and Fury still to come, but...

Obamacare is here to stay, and its emerging success will be the reason the Dems retake the House in November.

So True

From Peter Wehner's "A Debacle for Liberalism" (bolding is mine):

Critics of the president may be wrong. Obamacare may turn out to be one of the most successful and popular programs in the history of man. But whether they are right or wrong, there is at least no confusion as to who has ownership of the Affordable Care Act. We all know who stood where, when; who supported it and who opposed it; and we are now in the process of being able to judge the claims of Obamacare against the reality of Obamacare. An abstract debate can now be measured by its true effects on the nation as a whole.

It looks to us that liberalism, in getting what it wanted, will end up doing significant and sustained damage to itself, to public confidence in government (which is already near historic lows), and to its conception of the welfare state.

It would be quite an historical irony if Obama, who raised such extravagant hopes among progressives when he ran for office, turns out to have a shattering effect on contemporary liberalism. But that may be just where we are heading. Barack Obama may turn out to be the best thing to happen to conservatism since Ronald Reagan.

So true.

The lines have been drawn on Obamacare more clearly than on any other policy issue in my lifetime. The Right is so completely clear and confident that they are right that it's almost scary. Have they lost their minds? It's always dangerous to assert, without the quiver of a question, that you are right and could not possibly be wrong.

If the website begins to work, if enrollment is solid, and if the under 35s' sign up, then they're wrong. They will find a new attack line in order not to admit it, but they will be wrong. Dead wrong.

The very large, current flap on folks losing their individual, bare bones policies is a one time phenomenon. During the open enrollment period next year, this issue will not arise. The adjustment will have been made. So if we have solid enrollment, and the under 35s' have signed up, the system will work.

Does no one in Conservative-land see this possibility?

This Just Makes Me Happy!

Crossing a Red Line

I think Republicans are crossing a red line: they are waging a war, not just on the social safety net policies that help the poor, but on the poor themselves. Paul Krugman made this case very well this morning in his New York Times column titled "A War on the Poor". Here's Krugman:

John Kasich, the Republican governor of Ohio, has done some surprising things lately. First, he did an end run around his state’s Legislature — controlled by his own party — to proceed with the federally funded expansion of Medicaid that is an important piece of Obamacare. Then, defending his action, he let loose on his political allies, declaring, “I’m concerned about the fact there seems to be a war on the poor. That, if you’re poor, somehow you’re shiftless and lazy.”

Obviously Mr. Kasich isn’t the first to make this observation. But the fact that it’s coming from a Republican in good standing (although maybe not anymore), indeed someone who used to be known as a conservative firebrand, is telling. Republican hostility toward the poor and unfortunate has now reached such a fever pitch that the party doesn’t really stand for anything else — and only willfully blind observers can fail to see that reality.

"...the party doesn't really stand for anything else..." Think about that statement for just a minute. If you're reading this blog, you are probably a progressive. Try to notice those progressive lenses and suspend them for a moment. Is the statement an accurate reflection of the GOP today? Could we gather evidence that would convince an international body of impartial observers? (By the way, I know we cannot be sure of finding such a panel, but the exercise as metaphor is useful, nonetheless.)

I think we can gather such evidence. I think Krugman is right. And if so, the GOP is definitely crossing an important - I could even say, sacred -red line: No political party can long survive in America if it truly despises a significant portion of the electorate.

I think the GOP, driven as it is now by the Tea Party, aggressively, passionately dislikes the poor. Why? Krugman again:

In a much-cited recent memo, Democracy Corps, a Democratic-leaning public opinion research organization, reported on the results of focus groups held with members of various Republican factions. They found the Republican base “very conscious of being white in a country that is increasingly minority” — and seeing the social safety net both as something that helps Those People, not people like themselves, and binds the rising nonwhite population to the Democratic Party. And, yes, the Medicaid expansion many states are rejecting would disproportionately have helped poor blacks.

So there is indeed a war on the poor, coinciding with and deepening the pain from a troubled economy. And that war is now the central, defining issue of American politics.