Obamacare Authorities Actually Think Health Costs Fell

41586635 - obamacare red grunge vintage stamp isolated on white backgroundThe Centers for Medicare & Medicaid Services (CMS) has just made the remarkable claim that medical costs paid by health insurers operating in Obamacare’s exchanges declined in 2015 from 2014:

Per-enrollee costs in the ACA individual market were essentially unchanged between 2014 and 2015. Specifically, after making comparability adjustments described below, per-member-per month (PMPM) paid claims in the ACA individual market fell by 0.1 percent from 2014 to 2015. For comparison, per-enrollee costs in the broader health insurance market grew by at least 3 percent.

The agency’s report, however, compares apples to oranges. When discussing the change in costs in the exchange, it estimates medical claims. But when discussing changes in employer-sponsored health insurance, it estimates premiums (which increased 3 percent). The average Obamacare premium increased 5.2 percent in 2015, more than employer-sponsored coverage. (See my note below.)

If health insurers increased their premiums by 5.2 percent, but the claims they paid out decreased by 0.1 percent, they would be jumping for joy, having mastered Obamacare’s risks beyond their wildest dreams! They would have competed hotly for market share in 2016, likely cutting premiums.

Needless to say, that is not what happened. In 2016, the average premium increase was eight percent. And insurers still have not mastered Obamacare’s risk. Insurers are bailing out of the exchanges, and the prospective annual premium increase for 2017 will be 17 percent.

How did the Obama administration come to its remarkable conclusion?

This analysis draws on data collected by CMS to administer the ACA’s transitional reinsurance and risk adjustment programs. To operationalize these programs, CMS implemented a distributed data approach through External Data Gathering Environment or “EDGE” servers.

The folks at CMS need to have a serious talk with the contractor which operates the EDGE servers, because this analysis is exceedingly hard to accept.

Note: After 2015 open enrollment was completed, ASPE Office of Health Policy reported an average monthly premium of $364 in the 37 states using HealthCare.gov (Issue Brief, March 10, 2015, page 15). In 2014, it had been $346 (Issue Brief, June 18, 2014, page 6). That is an increase of 5.2 percent.

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For the pivotal alternative to Obamacare, see the Independent Institute’s widely acclaimed book, Priceless: Curing the Healthcare Crisis, by John C. Goodman.

John R. Graham is a Senior Fellow at the Independent Institute.
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