Obamacare Enrollment: Not Catastrophic, But Not Great

With the latest round of Obamacare enrollment numbers, the administration is once again trying to put a positive spin on the troubled health care reform. Health and Human Services Secretary Sebelius said, “These encouraging trends show that more Americans are enrolling every day,

and finding quality, affordable coverage in the Marketplace.” But are the new enrollment figures actually encouraging? That depends—on what the goals are for Obamacare, and on how you measure success.

It is instructive to understand one of the administration’s critical goals under Obamacare: enroll healthy people and young people. Simply put, the healthy population tends to use fewer health services—this makes such individuals a less expensive population to cover, both for insurers and the government, due to Obamacare’s subsidies. 

Insurers do not only want the young and healthy, they want the old and healthy too. Having healthy 40 year olds, for instance, is even more important than healthy 25 year olds, because they will have lower spending, but pay higher premiums.

Insurers need the healthy population to balance out the risks of the sicker population that is bound to enroll, thanks to the law’s guaranteed issue provision and ban on risk rating. These same provisions, however, mean that young people pay more than their actuarially fair premiums, to compensate for the older and sicker population. That makes it more difficult to goad them into purchasing these newly-minted plans.

Lower than expected enrollment by the young and healthy would mean upward pressure on premiums in later years. Although the magnitude of the increase can be debated, the Kaiser Family Foundation found that if the young enroll at half the rate of the rest of the population, relative to the total potential market, insurer costs would be around 2.4 percent higher than premiums, implying a similar increase in premiums.  Seth Chandler, an insurance expert and professor at the University of Houston Law Center found potential increases to be greater—around 3.5 percent. Alone, neither of these scenarios would be enough to trigger a “death spiral,” but they would certainly hurt the stability of Obamacare’s exchange market.

All of this means that the young invincibles’ share of enrollment is, at the very least, a decent metric of success.

In its report, HHS finds that over Obamacare’s four months, 3.2 million people have selected plans, including those who have not paid their first month’s premium, up from 2.15 million as of last month. Of this group, 25 percent fall into the coveted “young invincibles” crowd (18 to 34 year olds).  This is up from last month by one percentage point. The administration has attempted to spin this data by looking at the increase in enrollments by 18 to 34 year olds in January compared to the three months before that—27 percent compared to 24 percent.

These numbers on their own, are not very important—rather, the context is what matters. Are young people enrolling at a comparable rate to their share of the population? What about their share of the uninsured?

As it turns out, the young invincibles are enrolling at around their share of the non-elderly population—25 percent versus 26.7 percent (according to data from the Census Bureau’s Current Population Survey). Yet, simply looking at the share of the population is not enough, because an important goal under Obamacare is reducing the total number of uninsured. Young people make up 41 percent of the uninsured population, a large share. By this metric, young people are disproportionately not enrolling in insurance plans. 

Now, it is certainly possible—and even realistic—that in the next month and a half of open enrollment, which lasts until March 31, young people will suddenly enroll en masse. Indeed, the first year of Medicare’s Part D drug benefit, which is now considered widely popular and successful partly because it has come in below initial cost projections, saw enrollment that was lower than expected. 

But it is also likely that the young invincibles will remain a disproportionately small share of total enrollment, at least for this year. Already, about 11.5 million people have applied for coverage through exchanges, and 7.3 million have been found eligible. This represents roughly the size of the population that CBO and HHS have projected would enroll in the first year, and it is unlikely that many more will apply or be found eligible this year. Moreover, less than half of this population has selected a plan to date, and even in later years, the penalty for not obtaining insurance is poorly designed, and may not be enough when weighed against the costs and benefits of insurance. 

Unless the administration has a secret successful marketing tactic directed at the young invincibles, enrollment is likely to continue disappointing going forward.  

Yevgeniy Feyman is a fellow at the Center for Medical Progress at the Manhattan Institute for Policy Research. You can follow him on Twitter here.