Blog PostsI've now looked at the CBO report for the Affordable Health Care for America Act, or the new House bill. I don't actually find this bill to be any worse, or better, than the last House bill. It shrinks the public plan from an estimated 10 million enrolled by 2019 in the old bill to 6 million in the new bill because of negotiated payment rates, but on the other hand the Medicaid expansion changes from 11 million to 15 million more in the new bill because of the increase in the eligibility limit. Hence, there isn't much difference here, except that it makes claims that the public plan is all that important look slightly more absurd.
But what if all the CBO estimates are wrong? Some people claim they're wildly off the mark. For example, Maggie Mahar says:
In fact, the uninsured, the self-employed, the owners and employees of small companies, and those who are temporarily uninsured will be able to sign up for the public plan, if they choose, in the very first year of reform. The Census Bureau reports that over 15 percent of Americans are uninsured, while 10 percent (including the self-employed and early retirees) pay directly for private health insurance. Together, they comprise 25 percent of the population.
It's hard to take this estimate at face value because it obviously doesn't include factors like people being covered by Medicaid. To examine it, I decided to see what the maximum number of people who could legally enter the exchange was. In addition to the 21 million uninsured projected by CBO, other eligible individuals would also exist in the individual insurance market, which CBO projects at 27 million in 2010. Then there's small business. According to the Census Bureau, about 13 million people worked in firms with ten employees or less out of 114 million workers in 2004. Assuming a total US population of 300 million, a quick and dirty calculation suggests about 13*300/114 = 34 million people supported by small business employees.
But some small business employees don't get insurance through their employer, so there's some overlap between these figures: if we use a standard figure of about half of employees of very small firms getting employer sponsored insurance, that 34 million halves to 17 million. Now we can add them up: 17 21 27 million = 65 million, or more than 20% of the US population, exactly as Mahar stated.
What gives? It seems to me that we're comparing two different ideas. The CBO is apparently estimating how many are eligible to join the public plan under "reasonable" conditions: that many in the individual insurance market stay outside of the exchanges because they're not subsidized and therefore offer few benefits from joining, and that small employers that do offer insurance don't all drop their insurance and shift their workers into the exchange. Roughly 70% of the individual market is priced out of any subsidies. What about the other 30%, though? Here I cannot quite understand what the CBO was thinking. How can it be true that the individual market only shrinks by 20-25% of its present size when 30% of its customers would have a clear financial incentive to move to the exchange? This might hence be an underestimate, though it's not clear that it's very large. Out of the 27 million and 17 million above, the CBO does estimate 9 million would join the exchange even without any subsidy benefit, to bring its total population to 30 million.
At this point, however, all this figuring appears moot because the public plan's Medicare payment rates were killed in the House. The CBO now estimates that as a result, the public plan will have higher, not lower, premiums than the competing private plans. It will likely only take up about a fifth of the exchange, weighing in at a puny 6 million customers. Even if the size of the exchange reached its theoretical maximum size of 65 million, using the one fifth proportion, it would only amount to 13 million customers.
There are still a few possible caveats. First, people who buy a plan on the exchange while between jobs could opt to keep their plan even after they got work at another job. So if the exchange was really that desirable, it might grow steadily. Second, from my reading of the bill it appears that employees of exchange eligible employers could buy plans, though without any subsidies, on the exchange as well.
But will any of this actually happen? Not if the Massachusetts Connector is any guide as an exchange. What happened there is that while most of the uninsured who became insured under the state's programs were covered by subsidized insurance, there was no mass "dumping" by employers into the state exchange. In fact, employer sponsored insurance grew substantially in accord with the new regulations on the employers, exactly as the CBO projects for the entire United States with this latest House bill. And Massachusetts if anything seems more permissive than the proposed national system, since it lets everyone into its exchange, just denying subsidies to those with decent employer based coverage.
The lesson of Massachusetts seems to be that while all sorts of miraculous feats can in principle be accomplished by an exchange, in practice, they aren't.
