(Note: This blog was coauthored by my colleague Professor Craig Garthwaite.)
It was an up and down week for supporters of the Affordable Care Act. Republicans appear to have stopped linking government funding with partial repeal of the ACA. And well-publicized software problems plagued the 36 federally managed exchanges, making it difficult for enrollees to complete the application process. Still, supporters could crow about the large number of insurers who are offering products and the millions of Americans who visited the online exchange enrollment sites as a clear sign of the success of the Affordable Care Act.
We should never confuse activity with accomplishment. A few software updates will not be sufficient to assure the success of the exchanges. Two more important things must happen: Visits to web sites must translate into enrollments, and enrollees must represent the kind of cross-section of risks that will keep insurers in the exchanges in years to come.
Not surprisingly, enrollment figures vary considerably by state, with some states operating their own exchanges reporting some of the highest enrollments to date. But upon even minimal inspection, current enrollments leave much to be desired. In New York, 40,000 individuals completed applications in the first week, not bad until you consider that several million state residents are eligible for insurance. Washington State has 1 million eligible residents and just over 10,000 applicants. Reporting that 29,000 California residents had completed their enrollment applications, exchange Executive Director Peter Lee stated that this “blew his socks off.” Let’s put this in perspective. With 7.1 million uninsured in California, an application pool of 29,000 shouldn’t knock any garments off of anyone! These are the “success” stories. At the other end of the spectrum, at last count Maryland had a whopping 566 applicants. And lest we forget, applications are not the same thing as enrollments. Some insurers have claimed that applications are incomplete – potentially leading to a troubling situation where uninsured individuals may incorrectly think that they have secured insurance.
Before patting themselves on the back, exchange supporters should stand back and see what happens. Coming from the nation’s entertainment capital, California’s Mr. Lee should be especially aware of the dangers of judging success from opening week returns. Will the exchanges be like The Lone Ranger, which topped the box office in its opening week and then quickly faded away? Or will they be more like Argo, which gradually built its audience over time? Time will tell.
In addition, it is important that we have accurate indicators of success. In terms of the success of the exchanges, all enrollees are not created equally. It is perhaps more important to know who is enrolling than to know how many people are in the pool. Millions of Americans with chronic health problems are eligible for substantial subsidies for enrollment. It would be shocking (and a sad statement about the marketing and management of exchanges) if most of these individuals were not beating down the doors of the exchanges on day one. However, it would be bode very poorly for the sustainability of the exchanges if on January 1, 2014 the risk pools of the exchanges were flooded only with relatively old and sick individuals. The true success of the exchange hinges on the enrollment of younger, healthier, and wealthier Americans.
While the software glitches are troubling, they will become truly disturbing if they have raised the search costs of insurance to the point that low risk enrollees decide to take a pass and pay the $95 fine this year. While the fine goes up in subsequent years, we both fear that the premiums necessary to cover the health costs of a risk pool filled with individuals who have been previously locked out of the individual market will rise even faster. It took private insurers many years to figure out how to establish stable risk pools, often through the use of controversial practices such as preexisting condition exclusions. The government exchanges are relying on their own controversial practices, such as sliding scale subsidies and purchase mandates. Will these be equally or even more successful in establishing risk pools? Once again, time will tell.
These questions are critically important because we believe that the exchanges represent a vital and necessary change to the provision of health insurance in the United States. A well-functioning non-employer option will liberate an American labor market that has suffered from the linking of health insurance to employment. For the first time, small businesses will be able to compete on an equal footing with their larger counterparts, and entrepreneurs will be able to focus their attention on innovation without dwelling on how they will afford health insurance. Given how essential these exchanges are, it is frustrating and frankly galling that the federal procurement system has produced such a dysfunctional outcome. Given that the United States is a center for technological advancement on the Internet and the home of a wide variety of innovating firms, we deserved better than this outcome.