The 46th President of the United States assumed office after serving eight years as vice president to the 44th president and four years out of public service. Upon return to the executive branch, President Joe Biden has repeatedly said that he wants to “build on the Affordable Care Act”, the 44th presidential administration’s signature domestic legislation which reshaped individual health insurance markets and brought forth new challenges. The premium dynamics of the law are mathematically convoluted and often elusive, complicating assertation of which policies realistically “build on” the law. This is the first in a series of papers to provide policymakers and policy staff with actuarial clarity of market dynamics as they advance policies with financial implications for consumers of individual health insurance.
Albeit in a small wonkish universe, my fifteen minutes of fame was seven years ago. I wrote the first of many articles about the unique details of the Affordable Care Act (ACA) market dynamics, and it was highlighted by Forbes and received more attention than I expected. The premise of “Implications of Individual Subsidies in the Affordable Care Act” was straightforward:
(1) The ACA reshuffled individual health insurance premium rates and increased them beyond a level which most people would be willing to pay.
(2) Premium subsidies were necessarily a key component of the law, with the intention of making ACA markets more attractive by neutralizing high premium levels.
(3) The distribution of the subsidies was unbalanced and would contribute to limited and skewed marketplace enrollment.
The first two findings were easily understood and properly communicated. The more controversial third finding required algebraic comprehension, and public education was diminished by a deliberate lack of transparency from the ACA’s architects. I performed some simple math, displayed results in easy-to-follow tables, put some words around the nonintuitive implications, and submitted for publication. The volunteer exercise changed the trajectory of my career from a tactical, behind the scenes number cruncher to a visible public informant communicating the mathematical dynamics of health insurance policy.
Summarizing my initial insights, Forbes concluded, “One of the presumably unintended consequences of this misguided law is the fashion in which it encourages some young adults to become uninsured. These are the very young people that the Exchanges need to sign up for coverage if they are to avoid a death spiral…Millennials should be up in arms over how Obamacare is treating them. Greg Fann's numbers simply help prove my point. Let's repeal this lemon law as soon as possible and replace it with a patient-centered plan that is more efficient, equitable and effective.” Forbes referred to me as an actuary who had “cranked the numbers” and mathematically demonstrated that young adults would not qualify for subsidies as their premiums were considered “affordable” according to the arbitrary ACA definition.
The ACA has an age problem. The law is grossly unfair to young adults. This was ignored during the law’s implementation and it was mitigated but not directly addressed with President Trump’s regulatory actions. It is a blemish that we continue to disregard; rather than target the problematic structural issue with each policy update, we have attacked the problem by inefficiently increasing premium subsidies across the age spectrum, although the formula changes ironically do not always reach the young adults who have been most harmed by the law. Our response to inherent challenges has been unoriginal, repeatedly “adding more government funding which only further conceals the inherent structural issues from public understanding”.
A broad subsidy increase is what President Trump implemented in 2018, it is what California executed locally in 2020, and it is likely the prescription President Biden will follow, with perhaps a pretense of claimed originality. “Larger subsidies are needed”, we will continue to hear; without a directional shift, we should expect a blunt hammer infusing more federal money into ACA marketplaces with scant attention to structural framework changes and little analytical dissection of the disparate impact on the broad mix of potential individual consumers. As I learned of President Biden’s first proposed action regarding the ACA in the COVID relief package and watched the immediate public miscommunication of its implications, I could hear 2013 calling. It was a déjà vu moment, and it was clear that “the numbers” needed to be cranked again.
In the Age/Income Weeds
An insurance law’s financial impact on various subpopulations is something that actuaries are expected to study and comprehend, while such peculiarities may commonly exceed the ‘need to know’ detail of non-technical professionals. With the ACA, I disagreed with this general supposition. I subtitled my article “What Stakeholders Need to Understand” because I believed that the dynamic variances in consumer value propositions were extreme enough to impact enrollment results and challenge the law’s long-term sustainability. Seven years later, we hear the echo of my call from prominent ACA academics, “These dynamics are complex. They are confusing. And they shape the distributional consequences as well as the operational mechanics of most of the ACA individual market now and under most plausible reform plans. We need to understand these mechanisms well.”
The referenced ACA sustainability concern embedded in the misunderstood dynamics was always legitimate, and actuaries were indeed asking “Is the individual market sustainable?” through 2017. The more troubling aspect, however, in 2013 was not sustainability but that some of the assurances of ACA architects did not align with the mathematical dynamics, something not lost on those of us who had done the math. In fact, I proclaimed in 2016, in language painstakingly rephrased by pacifying editors, that “it was the repeated misperceptions of the legislative impact that initially piqued my interest in writing about the program details”.
My consternation with the false narrative peaked after reading a conversation in the October 2013 edition of Health Watch, the same Society of Actuaries publication where my article appeared and a journal with a proud tradition of objective truth rather than political hyperbole. Grace-Marie Turner of the Galen Institute had explained the ACA’s challenge with enrolling young adults. David Cutler, a Harvard economics professor and one of the ACA’s three key architects, challenged her assertion regarding the anticipated skewed enrollment.
Grace-Marie Turner: About two-thirds of the uninsured are under age 40. Because they are generally healthier and are less likely to be major users of health services, their premium contributions are needed to help keep insurance costs down for everyone else.
Yet the incentive structures in the law work at cross-purposes with this goal and could well undermine its success. The former director of the Congressional Budget Office, Douglas Holtz-Eakin, found in a study published earlier this year for the American Action Forum that, “Across all markets, the ACA will dramatically increase the cost of insurance for the young and healthy individuals and small employers.” He found that “the ACA regulations lead to a 149 percent average increase in the cost of insurance for this population.”
The survey also showed that fewer than half of young people will sign up for insurance if premiums rise by 30 percent.
Ezekiel Emanuel, a key architect of the president’s health plan, writes that he is worried that young people will be “bewildered,” and they may “forgo purchasing health insurance and opt to pay a penalty instead.”…The fact that the administration has been working so hard to convince sports heroes to help promote enrollment in the ACA insurance shows the significant concern about reaching this group.
David Cutler: I don’t think it will have a huge impact because it will be offset by the subsidies. Many young men have relatively low incomes. Thus, the premium they face will not be the full amount, but rather the amount net of the subsidy. Put another way, the ACA has limits on the share of income that people will pay for health insurance. These limits are sufficiently low that the price will not be a prohibitive factor in determining whether to buy coverage or not.
Mr. Cutler’s simplistic response lacks the necessary rigor to communicate ACA dynamics. As referenced by Forbes, many young adults did not qualify for subsidies as ACA rules considered their inflated premiums to be “affordable”. If there is no subsidy, they do indeed pay the inflated “full amount”. I explained the pervasive disinformation in “Implications of Individual Subsidies in the Affordable Care Act”:
The technical nature of the mechanics has been overlooked in public forums, and the impact of these subsidies is frequently generalized and misrepresented. A methodological understanding of how the subsidies work is required to understand the transition from gross premium to net premium, which is needed in order to model consumer behavior and develop reasonable enrollment and financial projections.
The resulting impact of the premium subsidies on net premium rates is not intuitive, and generally not well understood. While a technical analysis is required to understand the different impacts to different people, the natural inclination is to generalize and believe that the premium subsidies will have uniform and directionally appropriate effects across the eligible population, as most government entitlement programs are intended to do. However, the following sections will illustrate that the subsidies will primarily benefit older people. This reality is either unknown or overlooked when reliance on premium subsidies is the automatic explanation of why there is no reason to be concerned that young people may choose not to enroll in the individual exchanges.
Of course, this assessment was forward looking at the time. We had logical models and premium relationships that could be understood, but we did not have real marketplace experience. The next few sections discuss initial ACA market results and the implications that regulatory changes have had on market development.
The ACA’s First Decade
The ACA had a rocky start with operational and financial up and downs. While the operational challenges associated with exchange implementation are well known, the more significant risk to the law’s sustainability was financial. Administrative costs are around 15% of insurer premiums and claim costs averaged 99% of premiums in the first three years, resulting in billions of dollars in losses, market exits, and corporate insolvencies. Young adult enrollment proved to be a risk pool challenge; “the 18–34 demographic represented 28 percent of the market at the end of the 2014 open enrollment, short of the 39 percent targeted expectation”. Today, marketplace enrollment is about 35% of the Congressional Budget Office’s 2012 projections.
As President Obama’s presidency came to an end in 2016, ACA markets were at their lowest point and repeal of the law appeared imminent with the election of President Trump. When legislative repeal did not materialize and markets continued to struggle, the new president began reshaping the market environment through regulatory channels. Following a legal recommendation from the Department of Justice, President Trump enhanced federal funding and converted cost-sharing reduction (CSR) payments to insurance companies into funds available to subsidized enrollees to offset premiums. This regulatory change directly lowered consumers’ net premiums. Government data indicated that the “Percentage of Enrollees” with access to premiums of ‘$75/month or less’ clearly increased from ~70% in 2015-2017 to ~80% in 2018-2019. Insurer participation in markets increased and benchmark premiums declined for three straight years. Public sentiment for the law improved amidst the reduced costs across all income categories and more flexibility for those harmed by the law to procure non-ACA coverage.
Despite the dramatic market improvements which extended into 2021, the media and purported supporters of the ACA remained uncannily silent about the regulatory changes and revitalized market dynamics. Public discussion instead centered on dissection of phantom repeal plans and a court case related to constitutionality of the individual mandate while Congress did nothing to address what should have been an easy constitutional remedy. Market improvements could have been even stronger with objective communication[1], but electoral interests exceeded ACA transparency and health insurance consumers remained largely unaware of ACA market revitalization. In October 2020, Washington Post health reporter Paige Cunningham mused “If Biden wins, it will be interesting to watch Democrats flip back to applauding improvements in the ACA marketplaces instead of ignoring them.” More generally, I had hoped both sides of the political spectrum would facilitate further market improvements by bringing needed public recognition to the clear beneficial reality of the ongoing ACA market transformation and the new opportunities for states to optimize their local markets.
The reticence to applaud ACA improvements has always been tied to the underlying politics. How do we explain markets improving significantly under President Trump when he supposedly “attempted to sabotage the ACA at every turn, jeopardizing coverage for millions of Americans and causing premiums to skyrocket”? Of course, he was doing none of those things and premiums were declining, but market destruction was the continuous message we heard from the media, Congressional Democrats, and on occasion, President Trump himself. For virtually every measure, the public portrayal of ACA market direction was the opposite of reality.
Disinformation has harmed ACA markets in many ways; we need to flip the script and be transparent with stakeholders. A proper understanding of the ACA requires a systemic cognitive change from ascribing policy implications based on politics to seriously seeking to understand policy implications. That understanding is not realized by listening to tiring political rhetoric; it is achieved only by doing something that many of us find less familiar, less pleasant, and less exciting, and that is doing some basic math. It is the necessary path forward as we consider the efficacy of future changes to ACA formulas.
At the beginning of the Biden presidency, the really good news is that ACA markets are stronger and more popular than they have ever been. As costs are lower and consumers have more options, it is easy to understand why. The better news is that ACA markets will continue to improve if left alone; the bad news is the political temptation to disrupt markets may be too great, and unintended adverse consequences are never far behind.
To avoid such consequences, we need to do a little homework and study what shockingly has not been the easy guide to ACA construction and modifications. ACA dynamics are not difficult to follow, but we really do have to do math; not a lot of math, but some math. Our inability to understand ACA dynamics has never been because we were unwilling to do numerous math calculations; it has always been that we were unwilling to accept any math at all, and instead rely on ascribed political intent despite objective clarity revealing the opposite. It has been too easy to find comfort with company, which is why most of what we have read about the ACA is consistent and familiar while also inaccurate. In my continued interest in objective accuracy seven years later, I am updating “what stakeholders need to understand” and combatting the “lack of transparency” aspirations of ACA apologists by illustrating specifically what we need to know. Let us not concern ourselves with the political rhetoric of who says they want to “build on the ACA”; let us look at the numbers and the value propositions offered to consumers in the proposals they put forward. Fortunately, this is all too easy to do.
A Good Start for President Biden
As President Biden settles in his office, the unbalanced subsidy distribution is no longer a secret limited to the actuarial world; at least most of us do not think it is. Almost everyone regards unbalanced subsidy allocation as the ACA’s largest flaw. Many of us generally and defensively summarize the challenge by stating “the ACA is not perfect; we always knew it would need adjustments”. A more specific recognition is that “we need to extend premium subsidies to a broader income base”. Bottom line, we are aware that subsidy eligibility is income-based and that equity challenges arise at higher incomes.
But once again, “the natural inclination is to generalize and believe that the premium subsidies will have uniform and directionally appropriate effects across the eligible population”. While the income-based inequity is well understood and not unfamiliar, the age-based inequity is often approached with more opaqueness. In fact, when people boast about what the ACA has done for young people, what do they say? You know the backhanded answer. They tellingly steer discussion away from ACA markets and highlight an escape option from ACA markets that is limited to young adults under age 26. The escape option is of course discriminatory and only available to young adults whose parents have other health insurance, which may or may not provide a reasonably good value. It is wholly incongruent to describe the ACA as beneficial to young adults because it significantly raised their premiums and then allowed some of them to escape to other markets unregulated by the ACA; that is equivalent to a farmer explaining how useful his fence is by only assuring us that he always leaves the gate open.
To properly assess the impact and equity of ACA policy changes, a holistic consideration requires a matrix-based age/income analysis within ACA markets. We are about to dive into the math you were warned about; it is nothing more than elementary calculations, but there are a lot of numbers to digest. This would be a good time to take a stretch/coffee break.
Policy Scenarios
As discussed, it is imperative to realize that the ACA’s impact was extremely varied for different subpopulations; future policy development should consider holistic impact, and the best way to do that is to measure the impact across the most volatile characteristic of ACA value propositions, and that is net premium levels which vary by age and income. This analysis approach is not new. When research was performed to assess Republican bills to repeal the ACA, this is precisely what was done. KFF noted “Adults age 50-64 with incomes below 200% of the poverty level would see the biggest loss of coverage under the AHCA – a 150% increase in the number of uninsured in 2026 relative to current law.” Of course, the ACA represented the ‘current law’ baseline at the time, and the obvious problem with this analysis was that the ACA did not provide a reasonable baseline comparison. After all, it was the ACA’s resulting premiums that created market instability and necessitated contemplation of a more sustainable model. Convoluted ACA premium results[2] were hardly a sensible base comparison for reasonableness. In this paper, we compare ACA premiums for the population susceptible to ACA premium challenges relative to an equitable unsubsidized pre-ACA environment, meaning that “differences in rates reflect material differences in expected costs”.
We first establish that the ACA was primarily beneficial to people with chronic medical conditions and individuals with incomes below 200% of the Federal Poverty Level (FPL). Most individuals with chronic conditions can obtain insurance coverage at premium levels less than their known costs. Those with incomes below 200% of FPL can procure generous insurance benefits at very low prices. A previous study illustrated the attractive low premiums and consumer satisfaction with the lower income population.
The policies implemented under the Trump administration and those proposed by President Biden do not attract those in groups already advantaged by the ACA; these individuals already have substantial price incentives to maintain ACA coverage. Trump and Biden policies primarily impact coverage decisions for the healthy population with incomes above 200% of FPL, and President Biden says he intends to fill remaining gaps of subpopulations poorly served by the law. Unfortunately, those gaps and the underlying ACA dynamics are not well understood, and such policies will likely be constrained by the ACA’s inefficient structural framework; the unique exception is state implementation of Section 1332 waivers which were granted more flexibility in 2018, particularly if deficit impact measurements are later changed to a “per capita” rather than a whole dollar budgetary consideration.
To comprehend the holistic impact of various policies and directional dynamics across the population above 200% of FPL, we consider policy implications for nine relatively healthy individuals spanning a wide range of age and income (low, middle, high) levels. From the nine data points, we can logically infer the ramifications for individuals of different ages and at other income levels.
Net premium rates of the nine individuals are measured in four policy scenarios. The first scenario is the pre-ACA environment prior to 2014. This serves as a baseline for equitable pricing. If premium rates significantly exceed expected costs for a subpopulation, individuals in that group are less likely to enroll in poor value coverage. This poor value pervasiveness across the age/income spectrum is precisely why ACA markets have struggled with enrollment results in certain demographic segments.
ACA premium results are measured by the impact the law has had on premium rates of the illustrative nine individuals. Ideally, with an annual federal subsidy near $5000 for each market enrollee, the ACA would provide lower net premiums for all nine people and coverage levels would be enhanced. As we will see, the unbalanced premiums and subsidy allocation results in favorable dynamics for some individuals and unfavorable dynamics for others. Policy changes can be targeted to improve results and equity among market participants, and that can be mathematically measured with each policy iteration.
For ease of reference, we refer to the three ACA environments in the informal familiar lexicon of three presidential administrations: Obamacare, Trumpcare and Bidencare. Throughout this paper, “ACA” refers to the law while “Obamacare, Trumpcare and Bidencare” refer specifically to the different ACA policy environments.
Obamcare represents the original ACA environment from 2014 to 2017. Obamcare premiums are reflective of the 2017 rules and not discounted for the temporal impact of risk corridors or reinsurance.
Trumpcare reflects the ACA environment since 2018, when direct insurer funding to insurers was replaced with consumer vouchers, significantly increasing silver premiums and premium subsidies. It should be noted that Trumpcare has not been fully implemented in every state; some states have lagged[3] in enrollment shifts and regulatory enforcement of metal level premium alignment, facilitating a predictably slow makeover. For example, Trumpcare was immediately implemented in Wyoming, while Pennsylvania took a regulatory step toward Trumpcare last year. Colorado is the only state that has passed a law to encourage regulations facilitating Trumpcare, but premium relationships are still in an Obamcare environment, as they are in some other states. State action to accelerate Trumpcare implementation and stricter ACA compliance is regarded as Focused Rate Review, and state models have been created to demonstrate the impact of compliance-driven ACA market improvements.
For our purposes, Bidencare represents two proposed changes to Trumpcare. The first removes the income subsidy cliff, one of two elements in the COVID relief package and an optically significant policy development. The second is the calibration of subsidies ”on the cost of a more generous gold plan, rather than a silver plan”.
Other policies that have been attributed to President Biden are not considered in the Bidencare policy scenario. They are harmful to ACA markets and considered a political lift in a divided Senate. Unless carefully crafted, a “public option” would either poach enrollees from the small ACA market or unnecessarily compress premium subsidies. It is worth mentioning that President Obama’s 2016 public option plan was intended to fill geographic gaps in ACA markets, not to compete with them. The “bare county” concern was an Obamacare dilemma that was resolved in 2019 with the improved framework; insurers are attracted to favorable Trumpcare (and presumably Bidencare) markets. Another proposal mentioned is a reduction in the Medicare eligibility age which would attract healthy individuals away from markets. This would also poach from the ACA’s core constituency and increase premiums in an Obamacare environment.
More subjectively, the COBRA subsidies in the COVID relief package are highly discriminatory and should not be considered. According to Larry Levitt at KFF, this policy “has support in the business community and could attract Republican votes.” Color me unimpressed. Societal approval from benefitting groups does not make subsidizing COBRA good policy. Why would we want to make federal subsidies contingent on having prior group coverage? If ACA markets are a suitable option for individuals without employer-sponsored coverage, then COBRA subsidies are redundant. If ACA markets are not a suitable option (an admission that the ACA fails its most basic purpose), we should not limit a federally subsidized solution to individuals based on the pure arbitrariness of having prior group coverage. Accordingly, Bidencare includes the subsidy cliff removal and modifying tax credit calibration to gold plans rather than silver. Bidencare does not include a change in Medicare age eligibility, a public option, or COBRA subsidies. The three policy scenarios are summarized in the table below with changes noted in red.
ACA Premium Dynamics
We start the mathematical demonstration with pre-ACA premiums for Silver and Gold level coverage to provide a baseline. Premium rates and relationships are intended to be transparent, reasonable, and compliant, but not representative of any specific geographic locale.[5] To measure ACA market attractiveness, ACA premiums are compared to pre-ACA premiums.
Obamacare
Gross premiums under Obamacare are higher than pre-ACA premium and age slopes are narrowed to a regulated 3:1 age curve.
Premium subsidies are determined by first calculating the maximum contribution for Silver coverage. For example, for a 46-year-old with an income of $48,000, the maximum monthly contribution is $48,000 / 12 * 8.5% = $340. As the gross premium is $421, the premium subsidy is $421- $340 = $81.
Net premiums are simply the gross premiums minus the premium subsidy. Note that Silver premiums are the minimum of the gross premium and the maximum monthly contribution.
Trumpcare
Silver premiums are higher under Trumpcare than Obamacare due to CSR defunding. The enhanced premium subsidies resulting from Trumpcare improves the market attractiveness and risk pool morbidity. Consequently, Gold premiums are lower under Trumpcare.
Reflective of the higher Silver actuarial value, premium subsidies are higher under Trumpcare.
As expected, Trumpcare Gold net premiums are lower than Obamcare for every age and income category.
Bidencare
As premium subsidies are calibrated on Gold premiums which are more expensive than Silver premiums under Obamacare and less expensive than Silver premiums under Trumpcare, gross premiums for Bidencare Gold plans are lower than Obamacare but higher than Trumpcare.
Premium subsidies are extended under Bidencare to all income levels; note that individuals with $76,000 income have their contributions capped at 8.5%. Importantly, only the premium of a 64-year-old exceeds the 8.5% income threshold.
Finally, Bidencare net premiums are displayed and only the 64-year-old at a $76,000 income benefits from Bidencare. Note that Gold premiums are the minimum of the gross premium and the maximum monthly contribution.
Scenario Impact / Premium Relationships
The net Gold premium impact of each policy scenario and relationship to a pre-ACA environment are displayed in the tables below.
Obamacare is favorable to older, low-income adults and harmful to younger, high-income adults.
Trumpcare lowered gross premiums and enhanced premium subsidies for all subsidized enrollees. Relative to the pre-ACA market, Trumpcare is more favorable than Obamacare and mirrors Obamacare with favorability correlating with higher ages and lower incomes. In examining a potential legislative response to the ACA’s age-based inequity, Charles Gaba prefaces that Trumpcare “works pretty well for those earning between 100 - 200% FPL, and is at least acceptable for those earning 200 - 400% FPL”.
Relative to Trumpcare, Bidencare is favorable for older, higher income adults but unfavorable for everyone else. Relative to a pre-ACA environment, Bidencare is favorable for older adults and unfavorable for younger adults.
The bar graphs provide an alternative display of the net premium relationships for the nine individuals under each policy scenario.
Age/Income Equity
Using equal weights for the nine data points, an overall view suggests a 47% consumer cost increase because of Obamcare implementation and a near similar reduction due to Trumpcare. Trumpcare’s largest beneficiaries are low-income young adults. Bidencare increases average net premiums above the pre-ACA environment, but still well below Obamacare levels. It is worth reiterating that these results project full Trumpcare implementation under the Trumpcare and Bidencare scenarios. All state markets have not yet achieved full market equilibrium; in those marketplaces, premium rates are between the Obamacare and Trumpcare results. Disruptive legislation could prevent full Trumpcare implementation from being completed nationwide in both the Trumpcare and Bidencare scenarios, resulting in higher costs and difficultly expanding coverage under the ACA model framework.
Finally, equity is loosely measured by simplistic age and income via standard deviation metrics. Zero represents complete equity (no variance) and lower numbers represent stronger equity. Trumpcare improved age-based equity rather significantly but increased income-based inequity with increased subsidies for lower income individuals. By subsidizing individuals at high incomes for the first time, Bidencare enhances income-based equity. As Bidencare primarily benefits older adults who are already the most advantaged, age-based inequity increases under Bidencare. Overall, Trumpcare provides the best consumer value and strongest age-based equity, while widening income-based inequity, albeit still at lower premiums than Obamacare across the income spectrum. Qualitatively speaking, income-based inequity was a deliberate goal of the ACA while age-based inequity was incidental, so Trumpcare results appear of better consumer value and more aligned with original ACA ideals than either Obamacare or Bidencare.
Structural Problems
If you did not realize it before reading this paper, ACA math is messy and quantitative conclusions are often illogical, particularly when predicated on political suppositions. The paradoxical impact of the subsidy formula often leads to nonintuitive results and unintended outcomes if policy implications are not properly measured. The early proposals of President Biden have many similarities with the original ACA, providing benefits for some and adding costs for others while nurturing nonintuitive implications that are not well understood by stakeholders.
It will not sit well with those who lead with political maneuvering, but President Biden would be wise to support the Trumpcare implementation nationally and seek to understand developing market dynamics rather than quickly meddling with them. In fact, a call to support Trumpcare implementation has been promoted by left-leaning groups who have demonstrated tangible interest in policy implications rather than leading with underlying politics. Stan Dorn and Frederick Isasi of Families USA offer this recommendation to President Biden, “Realign metal-level premiums to fit coverage generosity. Following President Donald Trump’s elimination of federal payments for cost-sharing reductions (CSRs) that silver-tier exchange plans provide to low-income members, premiums for silver plans have covered CSR costs in almost all states. That means silver premiums should be higher than gold—but in most states, they are not.”
While Trumpcare offers the best consumer value, it also struggles with age-based inequity as Obamacare and Bidencare do. Notwithstanding a legislative change with a major restructuring, state implementation of Section 1332 is the most direct way to improve age-based equity and attract healthy, young adults to ACA markets. This requires a state-based exchange and a tax credit redesign tailored toward subsidy optimization. Otherwise, young adults at middle and higher incomes will continue to be dissuaded from ACA markets with unreasonably high premiums.
It has become well established in our national discussion that attracting healthy young adults to ACA markets is a worthy endeavor and necessary for vibrant markets. It is a message that is repeatedly cited in the public sphere, although ACA markets were designed counter to that goal. While the objective results provide clarity of misaligned consumer incentives, we should investigate whether that was intentional or a misunderstood calculation amidst the convoluted dynamics. Let us explore the evidence.
Attracting healthy young adults would improve the ACA risk pool, reduce premiums, and increase enrollment; there is no debate there. ACA architect David Cutler assured us that “sufficiently low limits” on premiums would attract young adults to ACA markets, but we must understand if that was ever important to President Obama and if age-based equity is really of interest to the Biden administration. There are several reasons to ask this question, and the answer may provide clues as to whether President Biden intends to develop a more sustainable model or simply throw as much money at the current model as Congress allows. Of course, he may go succumb to political pressure and go off course in an anti-ACA direction; and try to poach ACA markets of its core enrollment with distracting new programs like a “public option” or “Medicare expansion”.
Related to the age-based equity concern, it is helpful to consider the ACA’s coverage goals versus Republican ideals expressed in 2016 and 2017; if you are a casual health policy observer, this comparison is probably the opposite of what you think. Christine Eibner, an economist with RAND Corporation who recognizes Bidencare “mainly benefits people aged 50 to 64 years old”, conceded that Republican policy shifts toward age-based equity “increases the overall number of people with coverage”. While Republican repeal efforts aimed for vibrant markets and attraction of a broader population, Sarah Kliff of Vox (now with the New York Times) specified the Democratic concern with the Republican vision, as the ACA’s original intent was not about broader coverage goals and healthy risk pools. She explained, “This worries some Obamacare supporters, who say the goal of insurance reform isn’t just expanding coverage — it’s expanding coverage for people who really need health care.” The health insurance industry groups AHIP and BCBSA have directly proposed age-based equity improvements in ACA formulas, with one advocate noting in a 2019 presentation to actuaries that "any subsidy dollars beyond the point of incentive to buy coverage is wasted". Unfortunate from an uninsured rate perspective, ACA subsidies were not strategically developed to maximize coverage; they were effectively designed as a redistributive mechanism utilizing health insurance as a vehicle. A mandate to procure coverage was included in the law to counteract prudent voluntary decisions.
The ACA accomplished what it was primarily designed to do, while falling significantly short of its architects’ enrollment expectations. We should all acknowledge that the ACA has served vulnerable populations; we should also acknowledge that doing so left everyone else with a high premium marketplace that does not work for people without generous subsidies, which have been allocated in an inequitable manner that has not been directly addressed by Presidents Obama or Trump. Overall, private insurance enrollment has remained flat[6] after ACA implementation despite new federal funding assistance (about $54B annually) in the individual market.
But what about President Biden, who frequently reminds us that health care is personal to him? What does he personally think about ACA inequities and broadening market attractiveness? It remains unclear. He has said, “The ACA isn’t perfect, but the choices we made when designing the law flowed from a commitment to provide the best possible care to the most people.” This is of course unhelpful as it is a more accurate description of Republicans repeal efforts in response to the ACA rather than the ACA itself. He has said little else in the way of clues beyond the generic “ACA is a big deal” eleven years ago and “people are hurting” more recently.
Does President Biden want to throw more money to prop up inefficient markets as President Trump and California have done, or does he want to encourage Congress to address the age-based inequity in the law and rebalance the individual market risk pool? Can we gain some insight from staffing decisions? Maybe. Asked about Republican efforts to improve age-based equity in 2017, Andy Slavitt, Obama’s former health administrator who recently joined the Biden administration, summarily and surprisingly dismissed the concern, “The problem we don't have is how to help 27-year-olds get cheaper insurance. That's just not a national concern for us right now.” Had it been a concern in 2010, I would have never written this paper and you may have never heard my name. Because it was not, we have an ACA marketplace that was designed to attract older people and repel young adults, designed that way by people who assured us that the opposite was true, and if we believe them now, wished that they could have “made it all transparent but would rather have this law than not”.
As President Biden’s actions begin with removal of the subsidy cliff and contributions maximized at 8.5% of income, we should demand greater transparency and the Biden administration should clarify that his intent is to reduce premium for older, high-income adults and not address the ACA’s age-based inequity. More blatantly, Bidencare will not address the primary challenge of attracting young adults to ACA markets, because “that’s just not a national concern”.
All is not necessarily lost with the ACA-model approach if the Biden administration is transparent and does not disrupt current dynamics. Removal of the subsidy cliff and continued Trumpcare implementation will reduce consumer premiums. States can make ACA markets work today by “optimizing tax credits and strategically reallocating them”, and removal of the subsidy cliff would simply allow further optimization. The facilitation of stronger age-based equity in ACA markets can be achieved through tax credit structural changes implemented through Section 1332 waivers, unless of course President Biden rewrites the regulations and renders Section 1332 unnecessarily inflexible as President Obama originally did.
The full implementation of Trumpcare, which improves age equity, will continue to occur without legislative changes; the Congressional Budget Office believes transformation will be complete by the end of the decade but states can accelerate market equilibrium through focused rate review. Removing the subsidy cliff is good policy in the sense that it will improve income equity; the cliff was always due to an arbitrary budget-related limitation, not rational, strategic policy. The danger in removing the subsidy cliff is not the actual policy; the danger lies in the likely false portrayal of the policy implications. This policy is going to exacerbate the ACA’s age inequity. It is likely to be portrayed as benefitting everyone with high incomes across the age spectrum. That is a myth; we should 86 it.
Time will tell whether President Biden is interested in addressing structural issues in ACA markets. We need to allow him to get settled and review the changes in market status since he left office without pressuring him to quick action. As he recently announced a Special Enrollment Period[7] was intended to “undo the damage Trump has done”, it is clear there is currently significant distance between the president and a serious discussion of ACA market policy. It would be most unfortunate, but it is conceivable that he remains absorbed in a villainous Trump fantasy narrative rather than seeking to strategically advance consumer benefits through Trumpcare implementation. We may continue to have this 21st century marketplace that serves older adults well and leaves young adults with scattered opportunities to attach to their parents’ plans (whatever that may be) until they are hopefully able to maneuver onto a group insurance contract. If we do remain with the ACA model, we should focus on optimizing markets under current law rather than distracting policy advancements with gratuitous, politicized insults.
Optimistically, maybe the new, unnecessarily, critical president who has demonstrated no early interest in the substance of the ACA morphs into the Senator Biden who was cordial and had a serious interest in policy efficacy. We will need to hear how his approach of dealing with ACA challenges will be similar or different than President Trump’s actions. Will he simply continue the subsidy expansion, or will he directly address the ACA’s structural issues? If he asks my advice, the structural issues should be addressed but there is no need to rush. I would advise him to spend time[8] mastering the market dynamics, communicate them clearly, and insist that the media does the same. While the ACA environment has dramatically improved in recent years, progress has been diluted by the public misinformation that has surrounded ACA marketplaces. Much can be accomplished simply by trusting the American people and rejecting the lack of transparency ideal that was foundational in early ACA implementation.
Next Steps
The ACA has financial structural problems which create distributional inequities and dissuade young, healthy adults from enrolling in its marketplaces. These problems result in significantly high premiums which are somewhat offset by generous premium subsidies. However, the allocation of the subsidies exacerbates the distributional inequities. This paper mathematically demonstrates the inequities and explains what has been done and what may be done to address the underlying challenges.
Absent the market transformative authority of federal legislation, President Trump and California have increased premium subsidy amounts without restructuring ACA dynamics; after subsidies, older adults still pay lower premiums than younger adults at the same income level. While state funding has helped California consumers, states that have implemented Trumpcare and eliminated Metalball pricing from their marketplaces have optimized premium subsidies and offered even better consumer value. Since October 2018, states have had the opportunity to strategically reallocate subsidies through more flexible Section 1332 waivers. While 2021 premium results offer welcome news, market improvement has been stagnant partially due to public disinformation surrounding the ACA and states have been slow to utilize the new waiver flexibility. So far, only Georgia has been creative in endeavoring to reshape markets and the state focused its significant investment on reconfiguring sales distribution channels rather than optimizing consumer value. The controversial market change in Georgia is not expected to have a significant enrollment impact. The Texas legislature has reconvened, and a foundational model for optimizing the Texas marketplace has been established. Analytical models like the one developed in Texas are critical tools for state and federal policy. ACA marketplaces can and will improve if they are simply left alone, but that is unlikely, so it is imperative that the implications of legislative changes are quantitatively measured across age and income levels.
In summary, Bidencare’s removal of the subsidy cliff will benefit high-income older adults but it will exacerbate the ACA’s age-based inequity. ACA markets will continue to be unattractive to young adults after such a policy is implemented. If that is indeed the policy desire, we should be honest about it. We should not accept any more “subsidies benefit low-income people and young adults have low incomes” narratives; we should do the easy math and be transparent about policy implications.
On the other hand, if policymakers want to address the ACA’s age-based inequities, improve risk pools, and build a vibrant market in a fiscally, efficient fashion, that option is available as well. We just need to do a little math and be transparent about the holistic results of policy transformation across the age and income spectrum; if we decide to go this ambitious route, policymakers should reach out to their favorite actuaries and ask them what stakeholders need to understand.
Greg Fann is a consulting actuary at Axene Health Partners, LLC in Temecula, CA. He strategically advises clients on issues related to the ACA and is a frequent author and speaker. He is an active Society of Actuaries volunteer where he chairs the Social Insurance & Public Finance Section, oversees the Individual/Small Group Subgroup of the Health Section, and leads development of ACA-related examination curriculum. He can be reached at greg.fann@axenehp.com.
[1] In 2021, Jonathan Cohn, an ACA advocate, notes that the law is “highly flawed distressingly compromised, and woefully incomplete”. Rather than consistent gratuitous praise, better transparency during ACA implementation and through President Trump’s regulatory adjustment would have further advanced ACA market improvements. [2] In an October 2016 campaign speech in support of his wife Hillary, former President Bill Clinton characterized the ACA premium distinctions between subpopulations as “the craziest thing in the world”. [3] Disclaimer: The author has worked with states and consumer advocates to improve regulatory compliance and promote understanding of the value proposition of regulatory action. [4] 90% is a rough blend between 87% and 94%, the silver plan actuarial values for CSR enrollees under 200% of FPL. [5] Please contact the author at greg.fann@axenehp.com for market specific numbers. [6] The uninsured rate has declined due to significant Medicaid growth associated with a higher federal match for the “expansion population”. The Medicaid growth is often generally misinterpreted to infer ACA-induced private insurance growth. [7] This fulfilled a campaign promise which disrupted the regular Annual Open Enrollment Period in November and December. Maintaining the integrity of a limited Annual Open Enrollment period is a key principle of the ACA model, and it was never maligned by Presidents Obama or Trump. [8] In 2017, Kevin Drum at Mother Jones lambasted a potential decision by President Trump that would “wreak havoc with Obamacare”. Two weeks later, he reversed his thinking and said, “Let It Rip, Mr. President”. He began explaining his position change with an admission of a better analytical understanding; “I’m trying to better understand what would happen if CSR subsidies are eliminated, and I’m making a bit of progress”. If Mr. Biden is able to shift from reactive posturing to sober understanding as Mr. Drum did, the 46th president will lead us to more effective ACA-related outcomes.