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Obamacare Q&A: Fears of a Premium ‘Death Spiral’ Overstated

Kaiser Foundation expert predicts that, “What we’ll start to see in January are the real effects of the law, rather than the more hypothetical ones we’ve been talking about up until now.”

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Larry Levitt of the Kaiser Family Foundation

Few groups have tracked the Affordable Care Act as closely as the Kaiser Family Foundation, a nonprofit, nonpartisan think tank (not affiliated with Kaiser Permanente). Integral to those efforts has been Larry Levitt, senior vice president for special initiatives at the foundation.

Back in February, Levitt wrote a commentary for the Journal of the American Medical Association about what he expected to happen in the early going of the health insurance exchanges. He predicted: “It is very likely that it will be less than perfect.”

That’s certainly been the case. He continued:

“There also will undoubtedly be technical glitches in the eligibility and enrollment systems that are being created from scratch on a tight schedule. Some people will see their premiums increase, and anecdotes about those cases will undoubtedly be highlighted in the media. The fact that others will see their costs decrease or will have insurance that offers better benefits and more secure coverage may be overlooked. Although personal out-of-pocket costs for health care should decrease for most people, some may nonetheless perceive their deductibles and co-pays as unaffordable.”

With the impending Dec. 23 deadline to sign up for Obamacare coverage that begins on Jan. 1, I checked in with Levitt to see if his thoughts had changed. The email interview has been edited for length and clarity.

Q. As we approach the Dec. 23 enrollment deadline, how do you feel?

A. I’d say we’re pretty much where I anticipated we’d be with implementation – two months ago. I always expected, as did many others, that things wouldn’t be perfect at the start. In fact, I wrote about that back in February in JAMA. My expectation was that there would be some glitches in the systems, things wouldn’t necessarily work smoothly for people with more complex family and financial circumstances, there would some mix-ups on the back end transmitting enrollment information to plans (as in the Medicare Part D program at first), and things would be working better in some states than others. That’s essentially where we are now. That’s not ideal, but there is still time to get things back on track. Jan. 1 is important, but March 31 – the end of open enrollment – is even more important.

Q. It looks like there’s going to be a last-minute crush of applications (online and on paper). Are they going to be processed on time?

A. Well, my crystal ball is a bit blurry today, so there’s no way to say for sure whether all the last-minute applications will be processed on time. The good news is that data from the states, which have generally been reporting enrollment information faster than the federal marketplace, are showing a December surge. That suggests people have not necessarily been discouraged by the early problems.

I’d say the highest priority is avoiding coverage gaps for people who were buying their own insurance before. That’s folks who had their policies cancelled because they didn’t meet the new requirements of the ACA, as well as some people with serious health conditions in high-risk pools. There are also still a lot of people in the system who have been determined eligible but have not yet picked a plan. I know the federal marketplace has been reaching out to those people, and hopefully they can be converted into actual enrollees.

Q. There have been a number of reports about well-known hospitals not being included in many health plans. Are you concerned that consumers will discover this after it’s too late?

A. There will undoubtedly be people who discover, once they start using their plans, that there are health providers that they might want to see but aren’t in their plan’s network. That would be true even if everyone were perfectly informed, which I’m sure they’re not. People will have unanticipated health needs, so there’s no way they could know in advance all the services they will need. Before I tore my ACL playing basketball, I had no idea who my plan’s orthopedic surgeons were. But I got well acquainted with them once I needed to.

This is a private marketplace, and it’s the nature of insurance. The old days of open-ended, conventional insurance plans ended well before the ACA passed.

I also think it’s important to distinguish between limited networks and inadequate networks. Just because a particular hospital, even a very prominent one, isn’t in a plan’s network doesn’t mean that the plan is necessarily providing inadequate access or low-quality care. We should probably be focusing more on the question of how to determine and ensure the adequacy of networks, and I suspect the current debate will precipitate that.

Q. What’s your best guess in terms of what percentage of enrollees will actually pay their first month’s premium?

A. I think we have only very sketchy information so far about how many of those who have picked a plan have actually paid their premium and become true enrollees. So, it’s hard to even guess at a number. No doubt there will be some drop-off. That’s to be expected in any e-commerce situation where people have to go through multiple steps and don’t provide their payment information at the point they decide to make a purchase. It is important to remember, after all, that this was set up as a market-based system. Also, as I said before, Jan. 1 is significant, but more important is how many people sign up and pay their premiums by the end of March. People who have picked a plan but haven’t paid their premiums won’t turn into pumpkins on New Year’s Eve.

Q. Do you think that the deadline will be extended?

A.  I suspect that if enrollment proceeds relatively smoothly from here on out, the March 31 deadline will not be extended. There are some logistical challenges involved in extending the open enrollment period, since planning for 2015 will then be starting. And, the insurance industry is concerned about the precedent of backing away from defined open enrollment periods. The idea of a limited open enrollment period is to discourage people from waiting to sign up until they know they need services, and it’s a key part of keeping the insurance market stable. That being said, a short extension wouldn’t be hugely problematic, and it could even help if it provides more time to reach out to young and healthy people who may have waited until the last minute to enroll.

Q. Some early reports out of the state exchanges seem to indicate that more older people are signing up than younger people. Are you worried about the composition of the risk pool and what that means a year from now in terms of premiums?

A. Getting the right mix of enrollees – young and healthy, in addition to the older and sicker folks who we’re pretty sure will sign up because they know they need insurance – is definitely more important than how many people enroll. But, I think the concerns over this question have been a bit overblown.

Take the issue of the age distribution, for example. First, it’s important not to judge things too quickly. It’s reasonable to assume that early enrollees will be older, and that younger adults will come in later. So, I wouldn’t make too much of the initial numbers, especially given all the early technical problems. Plus, the outreach to young people is really just now beginning in earnest. Second, one needs to remember that premiums still vary significantly by age – people in their 60s pay three times the premium of people in their 20s. So, the system is mostly self-correcting. The variation in premiums doesn’t quite match the variation in costs by age, which is more like a factor of five-to-one rather than three-to-one. But, it comes close enough that the effect on premiums will be pretty small even if younger adults are less likely to enroll than older people.

Health status is more important than age, since premiums cannot vary by health. But even here, there are shock absorbers built into the system. The risk corridors, where the federal government cushions the effect if claims end up being higher than expected, help a lot. And, the federal government just proposed lowering the threshold at which reinsurance payments kick in for high-cost patients – from $60,000 in claims per person to $45,000 – which will also help.

In general, fears about a premium “death spiral” are way overstated.

Q. What are the first few days of January going to look like? A smooth start or something more chaotic?

A. I expect a mixture of stories at the beginning of January. There will likely be reports of some remaining errors in the back-end transmissions to insurers, with some people thinking they’re enrolled when they’re not. And, as I said, some people will be surprised by which providers are or are not in their plans. Some people may also start to discover that they have enrolled in plans with modest premiums but high deductibles, which may not cover their more routine medical expenses. At the same time, we’ll start hearing many more stories than we have to date about people who have signed up and getting help that wasn’t available before. That will include people with pre-existing conditions who have been locked out of insurance before, or low- and middle-income people who are getting tax credits that make coverage much more affordable. What we’ll start to see in January are the real effects of the law, rather than the more hypothetical ones we’ve been talking about up until now.

Editor’s Note: This post is adapted from Ornstein’s “Healthy buzz” blog. Have you tried signing up for health care coverage through the new exchanges? Help us cover the Affordable Care Act by sharing your insurance story.

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