Fools and Blind Spots: An Actuarial Analysis and a Paragon Event

The fourth quarter of the year and baseball playoffs are officially here (Go Phillies!). Today’s newsletter will focus on a new Prognosis from actuaries Daniel Cruz and Greg Fann on how policymakers should discount a new analysis from Oliver Wyman, which exaggerates the likely effects of letting the enhanced Affordable Care Act (ACA) subsidies expire.

But first, I’m excited to host Dr. Marty Makary from 11:30 am to 12:30 pm EDT in the Capitol Visitor’s Center for a discussion on his new book, Blind Spots: When Medicine Gets It Wrong, and What It Means for our Health. Marty is one of the most provocative health policy experts in our country and he works on and draws attention to issues that really matter, not just for our health but also for challenging dangerous dogmas of the medical establishment. In next week’s newsletter, I will review Marty’s book and recap my discussion with him. There is still time for you to register (and if you are one of the first 60 attendees, to get a book).

Won’t Get Fooled Again: Why We Shouldn’t Extend Pandemic Subsidies Based on Sensational Claims

The health care industry and politically powerful insurers are going to fight hard to keep inflated government subsidies flowing to them. Among them, the Blue Cross Blue Shield Association financed Oliver Wyman to do a study of the purported impact of Congress permitting the ACA expanded subsidies to expire. These expanded subsidies have led to a surge of improper enrollment and fraudulent spending with big profits for health insurers and brokers, but with little, if any, evidence of improved health outcomes.

Policymakers have good reason to doubt these projections, according to Cruz and Fann’s analysis. They “find that Oliver Wyman’s estimates lack the precision and validity necessary for policymaking. If the enhanced subsidies expire, it’s likely that far fewer people overall, including those with chronic conditions, will lose coverage.”

Cruz and Fann think that Oliver Wyman’s study overestimates the numbers of Americans with chronic conditions who would lose coverage by a factor of about 10 using their mid-range estimates. Some excerpts from their important piece:

The figure [this week’s Paragon Pic] shows the total premium broken out by the enrollee’s out of pocket premiums, underlying subsidies from the Affordable Care Act, and the enhanced subsidies. Premiums did not change much from 2021 through 2024, so this figure closely illustrates the situation in 2024.

The enhanced subsidies provided only modest monthly savings for people with incomes less than 400 percent of the FPL—about the equivalent of dinner for a family of three or four people at a fast-food restaurant. Sometimes, a simple question can reveal more than a complex model: Do we really believe millions of Americans with high-cost chronic conditions will go uninsured due to a $30 to $45 increase in monthly premiums? Is such a change truly indicative of “devastating consequences” to “the people who need coverage the most?”

Oliver Wyman appears to think that 24% of these individuals would drop their coverage, but we find this assumption highly implausible. Many of these enrollees can still access free coverage through other ACA-exchange plans even without the enhanced subsidies. In short, those with high-cost conditions are the most appreciative of the value of subsidized insurance and are unlikely to lapse coverage if the enhanced subsidies expire.

The most significant impact of the enhanced subsidies expiring will be felt by enrollees earning over 400% of the FPL, who make up only 700,000 of the over 9 million new enrollees. Among those, it’s estimated that only 100,000 to 200,000 people have an HCC condition. For the 7 million low-income Americans now enrolled in the ACA individual market, it is highly unlikely that they will go uninsured over a $30 to $45 increase in monthly premiums—especially when free ACA coverage will still be available in many areas. It’s even less probable that individuals with chronic conditions will drop their coverage for such a nominal increase.

What impact can we expect? Based on our experience as actuaries managing various rate changes and observing consumer behavior, a reasonable estimate is that a $10 increase in premiums could lead to a 1% to 3% reduction in enrollment, primarily among healthy, price-sensitive individuals. Therefore, policymakers should not be surprised if the expiration of enhanced subsidies has a minimal effect, resulting in an overall enrollment decrease of 1 to 3 million, with around 100,000 to 300,000 individuals with chronic conditions losing coverage.

Cruz and Fann end their post, which I encourage you to read in full, with an analysis of the other factors that have driven enrollment, which are independent of the decision to continue the enhanced subsidies. Here are the concluding two paragraphs:

We don’t expect that out-of-pocket premiums going from $0 to something between $30 to $45 a month for plans costing around $600 a month on average is going to significantly change the established consumer awareness and participation in the market, although it should cut down on fraudulent enrollments. It’s also not going to change agent incentives to keep these people enrolled. More Americans now know they can get highly generous health insurance coverage for $30 to $45 (and other coverage for free) and will most likely remain insured. The bigger question that will likely drive future enrollment is whether we enforce rating compliance, better ensure eligibility rules are followed, and make it harder for agents to misstate applicant income to sign up folks for free coverage. The loss of the marginal ARPA subsidy increases will likely play a lesser role, particularly for those with chronic conditions.

Ultimately, while the expiration of enhanced subsidies may lead to a modest decline in overall enrollment—estimated between 1 to 3 million—we expect the vast majority of individuals with chronic conditions to remain covered. This reinforces the idea that we should not anticipate a return to pre-ARPA enrollment levels simply because enhanced subsidies are expiring. The enrollment dynamics reflect other policy changes at the federal and state level and enduring trends that go beyond temporary financial assistance intended to alleviate the burden of 40%+ premium changes during a pandemic, a scenario that was likewise informed by sensationalist projections.

All the best,

Brian Blase
President
Paragon Health Institute