The Obama administration has funded a new study by top consulting firm RAND Health that startlingly finds that if taxpayer subsidies are eliminated, Obamacare exchanges will fall into a “death spiral.”
The study comes in the wake of a number of lawsuits which are challenging the Obama administration’s implementation of Obamacare subsidies. Three lawsuits have made it to U.S. Circuit Courts, just one step from the Supreme Court, arguing that the text of the Affordable Care Act allows premium subsidies for state-run exchanges only. (RELATED: Second Court Strikes Down Obamacare Subsidies In Federal Exchanges)
The report was sponsored by HHS’s Office of the Assistant Secretary for Planning and Evaluation, which, among other duties, compiles the enrollment statistics each month during open enrollment for Obamacare exchanges. Given the ongoing controversy over Obamacare subsidies, HHS sponsoring the study could be a sign that the administration is beginning to worry about its prospects.
The administration’s motivations aside, the key finding from the report belies HHS’s pro-Obamacare position. Eliminating premium subsidies entirely would “cause large declines in enrollment and substantial increases in premiums,” RAND Health concluded. In short — Americans are far less likely to want Obamacare coverage, or to be able to afford it, when taxpayers aren’t footing the bill.
“In scenarios in which the tax credits are eliminated, our model predicts a near ‘death spiral,’ with very sharp premium increases and drastic declines in individual market enrollment,” the study concluded.
Obamacare supporters will tout that well-intentioned premium subsidies are working. But if the health-care law can’t survive without taxpayers supporting Obamacare enrollees, the point remains that the Affordable Care Act is failing in its promise to control the actual cost of health care and health insurance.
RAND found that without the ACA’s subsidies, the cost of premiums will rise by 43.3 percent and Obamacare enrollment will fall by a whopping 68 percent. That would mean 11.3 million more Americans would be uninsured.
“Low-risk individuals of any age may need a tax credit to incentivize them to sign up,” the study concluded, in what may seem common sense to the health-care law’s conservative opposition. “As a result, premium tax credits encourage the enrollment of low-risk individuals, who improve the risk pool and bring down premiums.”
In short, if someone doesn’t feel they need pricey health insurance, the study found, they probably won’t buy it — unless there are hefty taxpayer subsidies lowering their bottom line, or an individual mandate issuing a significant penalty on those who fail to sign up for coverage.
If the individual mandate forcing people to purchase coverage, instead of subsidies, falls by the wayside, the number of people who purchase individual health insurance outside the exchange would fall by over 20 percent — causing premiums for those that remain to increase by 7 percent. If the mandate were overturned, 8.2 million Americans wouldn’t be purchasing health insurance, RAND found.
The study also discovered that apart from premium subsidies and the individual mandate, the presence of young adults also plays a role in keeping the cost of exchange coverage down. For every 1 percentage point reduction in the share of young adult enrollees in the individual market, RAND expects a 0.44 percent increase in premiums.
After the first open enrollment period, the administration is 11 percent behind its goal of 39 percent of Obamacare enrollees nationally qualifying as ‘young invincibles’ (although that may have fallen since 700,000 people dropped their Obamacare coverage over the last six months). That would make exchange premiums 4.84 percent higher on average today than they would have been had the administration attracted the level of interest from young adults they had anticipated.
As implemented so far, Obamacare’s made many changes to the health insurance market. The individual mandate, for one, has been upheld by the highest courts, but taxpayer subsidies in federally-run exchanges — which accounts for over 5 million out of 7.3 million enrollees — are still facing serious legal challenges. If the Obama administration fails to uphold its position, it could put the exchanges in an extremely precarious position.
