Not What the Doctor Ordered

A paper recently published by Stephen T. Parente and Michael Ramlet of the Medical Industry Leadership Institute shows how the Affordable Care Act’s structural problems are going to take years to fully come to light. In the WSJ, Mr. Parente writes, “WSJ Industry experts say consumers should once again brace for significantly higher premiums.” Furthermore, by Mr. Parente and Ms. Frogner’s estimate, there will be more than 40 million uninsured by 2024—10% more than there are today.

First will be the Affordable Care Act’s “essential benefits” requirements. All plans—including those currently exempted for hardship and old plans extended for various reasons—must provide all of the law’s mandated benefits from Jan. 1, 2017. On average roughly 15% of plans offered in 2013 will not qualify for sale on the insurance exchanges once all extensions are completed. Depending on the state, as many as 60% of the plans sold in 2013 would not be permitted for sale.

The law’s “reinsurance” program will also expire in 2017. Health insurers will no longer be able to bill the government for 80% of a patient’s health-care costs when they make more than $45,000 in annual claims. The multibillion-dollar risk corridors for insurance companies will also sunset in 2017—ending the taxpayer bailouts that kick in when insurance companies providing ACA plans lose money. Insurance companies will have neither option by 2017, leaving consumers to pick up the tab through premium payments. Federal subsidies will be unable to keep up with such dramatic rate spikes.

Confronted with this cost crisis, consumers will react the only way they know how: by looking for cheaper options such as the remaining high-deductible health plans offered by private companies and the exchanges as well as plans with very limited physician and hospital networks geared to achieve maximum efficiency for the average patient. These plans are likely to provide no or limited access to specialized facilities and physicians. Rising premiums will create a cyclical exodus from insurance plans, with each wave of departures fueling premium spikes that cause even more departures.

Employer-sponsored coverage will also come under pressure. The data show that an increasing number of businesses are likely to cancel their plans in favor of letting employees get coverage on the exchanges—the same exchanges many will be fleeing. My research indicates that over five million will lose their employer-based insurance by the end of the decade. This is consistent with the Congressional Budget Office estimate that the ACA will lead to a seven-million person decline in insurance provided by employers by 2020. The penalty when an employer drops a health plan is typically cheaper than providing the plan.

This leaves the newly uninsured with two options: If they qualify by their income, sign up for Medicaid or stay uninsured and face a penalty. Many will choose the first option. In a newly completed, as yet unpublished paper by George Washington University’s Bianca Frogner and me, we estimate that Medicaid enrollment will increase by 2%-3% annually through 2024. Yet this will not capture everyone. Many will not be eligible for the program, because either they earn more than 133% of the federal poverty level (currently $11,670 for an individual, $23,850 for a family of four) or their state did not expand Medicaid.

Either way, there will be a significant number of uninsured Americans unwilling or unable to pay for the inflated insurance available on the exchanges and forced to pay penalties, which for 2016 and thereafter will be the greater of $695 or 2.5% of income. More will choose this option every year. By 2024, Ms. Frogner and I estimate that there will be more than 40 million uninsured, roughly 10% more than today.

So perishes the Affordable Care Act’s promise to deliver universal health care—its fatal conceit. The autopsy will show that it died from a lack of affordability, leaving behind millions of Americans who were sold a bill of goods. One thing is painfully clear: that isn’t what the doctor ordered.