Paragon Pics

They say a picture is worth a thousand words. Well, data visualization is worth at least that much. Paragon Pic makes health policy easier to see and understand by demonstrating with images what researchers would normally try to explain with a lecture or text. Check for a new figure every week.

5dg UnwindingvOpenEnrollment

Medicaid Unwinding Drove 77 Percent of Increased Exchange Plan Selections in 2024

Between the 2023 and 2024 Affordable Care Act (ACA) open enrollment periods, 5.1 million more people selected an exchange plan. As a previous Paragon Pic shows, this increase in enrollment was driven by enrollees eligible for coverage where taxpayers bear the entire cost of the plan.

This week’s Pic shows that in 2024, 77 percent of the increase in exchange enrollment came from the Medicaid unwinding population- Medicaid enrollees kept on the rolls despite being ineligible as a result of states not being allowed to remove them from the program during the COVID public health emergency (the continuous coverage provision in the Families First Coronavirus Response Act).

In April 2023, states began conducting Medicaid eligibility reviews and removing ineligible recipients. The Center for Medicare and Medicaid Services (CMS) tracks how many from the unwinding population transition to ACA exchange coverage. CMS reports that from April 2023 to January 2024 in all states, 3.9 million people who were no longer eligible for Medicaid coverage selected a plan on the exchanges.

As of January 2024, CMS reports that 14.8 million individuals were disenrolled from Medicaid or CHIP. Over 26 percent of the unwinding population selected a plan on the exchanges, a much higher percentage than projected by the Urban Institute (only 6 percent) and Ding et al. in Health Affairs (only 15 percent). Even more of those who were ineligible for Medicaid were already enrolled in an employer plan or are eligible for an employer plan.

As a result of the American Rescue Plan Act and Inflation Reduction Act, people making under 150 percent of the federal poverty level qualify for a fully-taxpayer subsidized benchmark plan which also has extremely low cost-sharing. Fully subsidized plans and the Medicaid unwinding are clearly driving the record enrollment in Exchange plans.

2dg Improper Payments

The Affordable Care Act’s Medicaid Expansion Caused Improper Payments to Soar

The Affordable Care Act’s Medicaid expansion has resulted in a massive increase in federal Medicaid improper payments, which soared from an estimated $14.4 billion in 2013 to $98.7 billion in 2021 as shown in this week’s Paragon Pic. The primary reason for the increase: millions of people were enrolled in Medicaid without proper eligibility reviews.

A poorly run Medicaid program harms the truly vulnerable by misallocating resources. Because of the ACA, Washington pays a much greater share of expenses for non-disabled, working-age enrollees than traditional Medicaid enrollees like low-income children, pregnant women, seniors, and individuals with disabilities. This ACA expansion elevated rate creates a large incentive for states to enroll people under the expansion criteria.

CMS paused eligibility audits from 2014 to 2017, and because states did not properly review eligibility during that period, improper payment rates were severely understated. Further, as the improper payment rate is an average over three cycles, the 2018 report accounted for only one-third of state eligibility reviews, and the 2019 report accounted for only two-thirds of state eligibility reviews. CMS stopped doing meaningful audits during COVID, so the reports after 2021 do not represent the extent of Medicaid improper payments. The best measure of the improper payment rate is likely still the 2021 report.

The ACA Medicaid expansion caused high improper payments, but the policy response to COVID-19 compounded the problem. The Families First Coronavirus Response Act (FFCRA) in March 2020 increased federal financial support of Medicaid if states did not conduct eligibility reviews or remove ineligible people from the program until the public health emergency ended, which the Biden administration extended to April 2023.

A new Health Affairs article estimates that in March 2022, 30 percent of Medicaid enrollees—or more than 26 million people—reported that they were not enrolled in Medicaid. This is an appalling problem that suggests so many recipients receive no benefit from the program and the government’s enormous expenditures.

According to the estimates, nearly half of this problem was the result of FFCRA’s requirements. This suggests that many people thought they were disenrolled from Medicaid because they gained another plan, most likely a plan from their employer and were just kept on Medicaid because states couldn’t remove people who had secured other coverage.

4dg Cbo

Escalating Cost of Obamacare Subsidies: Projected Ten-Year Cost Up $336 Billion

Premium subsidies received by insurers offering Affordable Care Act (ACA) exchange plans are escalating in cost. Both legislative changes and Biden administration regulatory actions, many legally dubious, increased the size of subsidies and extended eligibility for them. This week’s Paragon Pic shows the escalating cost, comparing the Congressional Budget Office’s (CBO) most recent estimates with its projections in September 2020 prior to several policies that inflated the subsidies. CBO expects that the cost of the ACA subsidies from 2021-2030 will be $336 billion more, or 53 percent higher, than it projected in 2020 before all the subsidy expansions.

The American Rescue Plan Act of 2021 increased subsidies for everyone already receiving one and expanded subsidy eligibility to people in households with income above 400 percent of the federal poverty level (FPL). This policy change made fully-subsidized plans with minimal cost-sharing available for individuals with income between 100-150 percent of FPL. The Inflation Reduction Act then extended the increased subsidies through 2025. Driven by these higher subsidies, exchange enrollment has surged, particularly for people below 150 percent of FPL, who are now nearly half of all enrollees.

According to CBO, 4 million additional enrollees were added in 2023 because of the higher subsidies. CBO highlights that the increased subsidies have led to less employer coverage: “Part of the growth from 2023 to 2025 stems from an increasing awareness of the policy that leads fewer employers to offer health insurance and, therefore, to higher enrollment in the [exchanges].”

Once the increased subsidies expire, CBO still expects a much higher subsidy cost than CBO projected in 2020. By 2030, CBO now projects that ACA insurance subsidies will cost $27 billion more than in its 2020 projection. This cost growth is largely because of three Biden Administration unilateral actions to pump up enrollment by directing more money to insurers.

  • The legally dubious “family glitch” fix significantly increased the subsidy cost. The so-called family glitch occurred because the ACA based a key affordability standard on the cost of self-only coverage. If an employer’s offer to an employee for self-only coverage was considered affordable, the employee and any dependents were not eligible for a subsidy. The “fix” ignored the clear statutory language and changed the affordability standard to the cost of the family premium. The result is that more employer offers are considered unaffordable, and more people become eligible for subsidies. The main effect is to largely replace private spending with government spending as dependents shift from employer coverage to subsidized exchange coverage. Based on CBO’s estimates, the additional subsidy cost from this policy will be roughly $6 billion in 2027, a cost which will likely grow as more employers stop offering dependent coverage as a result.
  • Beginning in 2022, the Biden administration created a special enrollment period allowing enrollees with income below 150 percent of FPL — who happen to now be eligible for fully subsidized premiums — to enroll year-round. This year the Biden administration made this perpetual enrollment policy Since nearly half of all exchange enrollees have income below 150 percent of FPL, this policy is likely very costly for taxpayers.
  • The Biden administration loosened income verification requirements starting in 2021. Under current regulations, if someone claims to have income above 100 percent of FPL, they would still be allowed to enroll in subsidized coverage even if administrative data suggest their income is too low to qualify. This policy encourages improper enrollment in subsidies given that the federal government is prohibited from recovering the vast majority of the subsidy cost for low-income enrollees who improperly enroll in the exchanges with a subsidy.
3DG MeantestingPIC 01

Small Percent of Medicare Part B Enrollees Pay Higher Income-Related Premiums

All Americans who are 65 or older or who meet certain disability or health criteria are entitled to Medicare coverage. The highest-income enrollees pay more for their Part B (outpatient and physician coverage) and Part D (prescription drug) coverage. But this means-testing is very limited. As a result, wealthier enrollees continue to receive significant taxpayer subsidies for their coverage.

The figure above shows that only 7 percent of Medicare beneficiaries were required to pay higher Part B premiums in 2023. Of all Medicare Part B enrollees, 93 percent paid the “standard premium”–equal to $164.90 per month in 2023.  Individuals in this tier made $97,000 or less in 2021 ($194,000 for joint filers). The share of enrollees paying an extra $65.90 a month plummets to 2.6 percent (incomes of $97,001 to $123,000 for individuals and $194,001 to $246,000 for couples) in the first means-testing tier and the highest tier only accounts for 0.2 percent of enrollees (incomes of $500,000 or more for individuals and $750,000 or more for couples).

A key feature in the design of Part B is that premiums only cover about a quarter of the cost, with taxpayers picking up three-quarters of the cost. The taxpayer share has significantly increased over time as initially enrollee premiums covered about 50 percent of expected Part B costs. This means that taxpayers are largely subsidizing Part B costs – including coverage for wealthier enrollees.

Medicare’s high and growing costs represent the nation’s primary fiscal challenge. Program expenditures are increasing due to the growth in health care costs and a growing number of retirees. The ratio of workers paying taxes into the program versus those receiving benefits is shrinking. Beneficiaries receive far more in Medicare benefits than they pay in premiums and payroll taxes. Paragon has recommended numerous bipartisan policies to reduce Medicare’s costs without cutting benefits. But reducing taxpayer subsidies for wealthier beneficiaries is another bipartisan idea that would improve the program’s finances and make the program less reliant on general revenue.

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Medicare’s Growing Costs Are Outpacing Dedicated Revenue Sources, Adding to the National Debt

Medicare is on a fiscally unsustainable trajectory. Policy experts rightly point out that the looming insolvency of Medicare’s Part A hospital insurance program risks sudden and sizeable cuts to benefit payments. But Medicare’s overall finances are much more precarious than the trust fund insolvency date suggests. Medicare’s rising costs are the number one programmatic factor driving unsustainable federal deficits and debt.

This week’s Paragon Pic shows that spending on every Medicare component is rising. Overall expenditures are outpacing Medicare’s dedicated sources of funding, mainly payroll tax receipts for Part A and beneficiary premium payments for the other parts.

The fastest growing part of Medicare is the Part B program, which mostly covers outpatient and clinician services. According to the Medicare trustees, Part B payments grew by 82 percent between 2013 and 2022. During that time, Part A payments grew by about 40 percent – less than half as much. Part B represented 48 percent of total Medicare expenditures in 2022.

Part B’s relatively high growth is due to several factors. On the positive side, medical innovations are allowing more services to shift from inpatient settings to lower-cost and lower-acuity ones like outpatient departments, ambulatory surgical centers, and physician offices.

On the negative side, excessive payments for certain services – such as outpatient hospital services and drugs – are also driving spending in this area. Between 2013 and 2022, Part B spending grew by 90 percent for hospital services and 113 percent for drugs, according to the trustees. This growth partly results from bad incentives created by misguided payment policies. For example, Medicare pays for routine services at a significantly higher rate when they are delivered in a hospital than when they are delivered in a physician’s office. It also pays an average of 48 percent above the maximum acquisition cost for drugs that hospitals acquire at a discount through the 340B program.

Part B does not face the same insolvency threat as Part A because most Part B funding comes from general revenue transfers rather than Medicare payroll taxes. (See this Paragon brief for an explainer of Medicare’s financing.) Every dollar spent on overpriced care in Part B is a dollar that cannot be spent on other public priorities – and another dollar added directly to federal deficits and debt.

Even without an insolvency date, the fiscal reality will make it more difficult to preserve Medicare benefits for future generations without crippling taxes. And by overpaying for certain outpatient services and drugs, Medicare significantly distorts the entire health care system today.

11AW Physiciansperpopsquare

Physician, NP, and PA Growth Has Significantly Outpaced Population Growth

This week’s Paragon Pic shows, contrary to popular belief, that the United States has more physicians per 10,000 people today than it has ever had. In addition, U.S. patients now have the benefit of the nearly 600,000 currently practicing nurse practitioners (NPs) and physician assistants (PAs). Overall, the number of these health professionals per 10,000 people more than doubled between 1980 and 2020—from 21.4 per 10,000 to 44.4 per 10,000. Roughly 43.6% of that increase was from the growth in physicians and about 56.4% of that increase was from the growth of NPs and PAs, two classes of professionals that were largely nonexistent in 1980.

This figure was adopted from Paragon’s paper, “Where are Provider Shortages? Reassessing Outdated Methodologies,” authored by Bill Finerfrock, an expert on rural health issues. In the paper, Bill discusses how the current way that the federal government defines health provider shortage areas is based on the 1970s workforce. It fails to include NPs and PAs in the methodology for evaluating shortages even though they have rapidly grown in number since then. Bill recommends several changes to the methodology, including the incorporation of NPs and PAs in the provider-to-population ratio so that federal resources would be better directed to areas of the country where there are actually provider shortages.

4dg Disputes

Arbitration Flood: Number of Payment Disputes 14 Times Above Projections

The No Surprises Act, legislation enacted to cure surprise medical bills, is not working as intended and is likely raising health care expenditures. Understandably, Congress wanted to protect insured patients from excessive costs in two situations: 1) in medical emergencies and 2) when they go to in-network facilities but receive treatment from a provider who is out of their network. In both cases, Congress limited patient cost-sharing to no more than they would owe for receiving in-network services.

Rather than leaving insurers and providers to settle on the price for services in which there was no prior contractual arrangement, Congress opted for an arbitration system—so-called independent dispute resolution (IDR). This led to the creation of a new bureaucracy through the Department of Health and Human Services in which the federal government is now a party to resolve payment disputes.

As the figure below shows, there has been a flood of cases submitted to IDR. Here is HHS’s own description:

In the first year … disputing parties submitted 14 times the number of disputes that the Departments had expected to receive in an entire calendar year. Due to this unexpectedly high volume, the limited number of certified IDR entities, the complexity of determining disputes’ eligibility for the Federal IDR process, and a large number of ineligible disputes submitted, it is taking certified IDR entities longer than the timeframes established … to process payment disputes.

In addition to an overwhelming flood of cases, the selected prices are much higher than expected. According to a new Brookings Institution review, the median IDR decision is nearly 4 times what Medicare would pay and the median decision is at least 50% higher than historical mean in-network commercial prices.

Unfortunately, much of what the federal government does in health policy does not work as politicians intend—almost always to the detriment of American families. It appears that The No Surprises Act is no exception. Early evidence shows it will increase what Americans pay for health care, largely through higher insurance premiums, while adding additional administrative complexity to an already too complicated payment system.

8AW 340B Paragon PIC

ACA & HRSA Rulemaking Ignites Unprecedented 340B Contract Pharmacy Growth

The 340B Drug Pricing Program started as a small program in 1992 to better enable safety-net hospitals and other 340B covered entities (CEs) to provide care to more indigent patients by mandating that pharmaceutical manufacturers give the CEs large discounts on prescription drugs. CEs like qualifying hospitals were allowed only one off-site contract pharmacy in case they did not have an on-site pharmacy. A 340B contract pharmacy is a pharmacy that has entered into a written agreement with a 340B CE to dispense discounted drugs to eligible patients on behalf of the CE, such as retail or specialty pharmacies.

340B Growth

Explosive growth from the Affordable Care Act and an Obama administration rule implementing it have caused the 340B Program to become the second-largest drug program in the country behind Medicare Part D.

Starting in 2010, CEs were permitted to have virtually unlimited numbers of contract pharmacies, resulting in a nearly exponential increase in contract pharmacies in the program. As shown in the Paragon Pic, the number of contract pharmacies increased from 503 in 2010 to 34,840 in 2024 – a whopping 6,826 percent increase.

According to the Pioneer Institute, hospitals used 17,250 contract pharmacies in 2024, up from 76 in 2010. By comparison, the number of CEs more than tripled from 3,866 in 2010 to 12,279 in 2024. Accordingly, as the Paragon Pic demonstrates, the ratio of contract pharmacies to CEs has substantially increased.

Lack of Transparency

The contract pharmacy surge also correlates with a major increase in the program’s cost (as measured in purchases at discounted 340B prices)—from $9.0 billion in 2014 to $53.7 billion in 2022. Despite the increased number of contract pharmacies that are helping CEs bring in record revenue, it is unclear if this revenue is being used to support the program’s original intent due to lack of transparency requirements.

As a 2014 report from the Government Accountability Office notes: “without adequate oversight, the complications created by contract pharmacy arrangements may introduce vulnerabilities in the 340B Program.” Moreover, although the purpose of the 340B Program is to support safety-net providers, increasing evidence suggests that the opposite is occurring. A 2022 JAMA paper found that “contract pharmacy growth was concentrated in affluent and predominantly White neighborhoods, whereas the share of 340B pharmacies in socioeconomically disadvantaged and primarily non-Hispanic Black and Hispanic/Latino neighborhoods declined.”

1DG Exchange

In 2024, Over Half of Federal Exchange Enrollees Have Income Below 150% of the Federal Poverty Level

Most federal exchange enrollment is now driven by enrollees choosing plans where taxpayers bear the entire cost, according to new data released last week by the Centers for Medicare and Medicaid Services. As is increasingly clear, the Affordable Care Act (ACA) is more a welfare program that transfers income than a health care program that benefits the middle class. According to CBO, federal subsidies—largely directly deposited into health insurers’ coffers —through the ACA totaled $218 billion in 2023. The vast majority of this was for Medicaid expansion and massive subsidies for people earning less than 150 percent of the federal poverty level (FPL).

The American Rescue Plan Act of 2021 significantly increased premium subsidies to insurers. The subsidy amount limits the premium people must pay for a benchmark plan (the second lowest-cost silver plan), although the subsidy can be applied to any plan. The subsidies are larger for lower-income people. People below 150 percent of the FPL also pay virtually no cost-sharing, including a de minimis deductible, if they select a silver plan.

As a result of ARPA, individuals making under 150 percent of the FPL now pay no premium for a benchmark plan, whereas previously, they had to contribute 2 to 4 percent of their income. These increased subsidies substantially increased exchange enrollment. The Paragon pic below shows that new enrollment is coming from people who now pay nothing for coverage because taxpayers foot the entire bill.

In 2019, roughly 35 percent of people who selected a plan during open enrollment in the 32 states using the federal exchange had income below 150 percent of the FPL. In 2024, this population accounted for 53 percent of enrollment. In all states, roughly half of  enrollees had income below 150 percent of the FPL.

Prior to ARPA, many people below 150 percent of FPL were unwilling to pay the $25 or less per month required to enroll in an ACA plan—a strong sign that they just don’t place much value on the coverage and that the main beneficiaries of the enhanced subsidies are health insurers. As last week’s Paragon pic demonstrated, health insurers’ profits have soared over the past few years with the large ACA subsidies.