Wednesday, November 5, 2014

Who Pays for Obamacare?

The dust seems to have settled on ACA a bit, so now is probably a good time to look at who's paying for what.   A lot of this question is boring and obvious:  when it comes to things like Medicaid expansion and the exchange subsidies, the answer is simply that we all are.  Revenues for those entitlements come out of the general fund.  Sure, there are a vast array of new taxes and the Great Medicare Advantage Robbery, but ultimately the burden of this stuff is spread, if not exactly evenly, at least widely.

Instead, I'd like to look at just the impact of the parts of ACA that deal with the Qualified Health Plans and the exchange subsidies.  In this case, the burden is far from even.

A quick refresher:  ACA mandates that the vast majority of individual insurance policies be Qualified Health Plans.  QHPs have the following attributes:
  1. They have a mandatory set of coverages, including preventive care, psychiatric care, substance abuse treatment, maternity coverage, and a variety of other women's health coverage.  Those coverages cost something.  Pre-ACA, a lot of that cost was borne by women, who were more expensive to insure.  Now they're borne by both sexes equally.
  2. QHPs are guaranteed issue, which means that poor risks can't be denied coverage.  Again, costs increase.
  3. QHPs have community rating restrictions.  The one with the largest impact is that rating on age is capped at 3 times the rate for the best unadjusted rate in the plan.
I have problems with the mandatory coverages and the size of the community rating cap, but in general these are all reasonable.  But they cost something.  The question is how much, and who pays.

To answer this, let's start with some stats that HHS released in June 2014 (see table 2):
  • Before any subsidies are applied, the average premium for an individual QHP is $346/mo.
  • 87% of all people insured with a QHP through the exchanges received subsidies.
  • Based only on those who received a subsidy, the average subsidy was $264.
  • Therefore, the average subsidy reduced the monthly premium to $82/mo.
Next, we need to know how many people are signed up on the exchanges and how many people have purchased non-group QHPs outside of the exchanges.  This should give us a pretty good number for the total number of people in the individual insurance market.  It's not a perfect number, because it doesn't account for grandfathered non-QHPs.  I'm going to ignore the grandfathered plans on the grounds that I'm trying to find out what QHPs are costing, and who's paying for them.  By the same token, I'm ignoring the vast majority of people who are covered by employer-sponsored group health plans.

This site states that, as of this writing (and the numbers have already been revised down two days later):
  • There are 7.3 million people current on their premiums for policies purchased on the exchanges.
  • There are another 8.0 million who have purchased QHPs off of the exchanges.  By definition, all of these people are not receiving subsidies.
Next, now that we know that the average policy costs, $346/mo, we need to calculate what it would have reasonably cost in the absence of ACA's QHP provisions.  To do that, we first note that, in 2010, before ACA took effect, the Kaiser Family Foundation calculated that the average individual policy premium was $215/mo.

Now, if we know how much that premium would have gone up due to health care cost inflation, we can come up with a "what if there were no ACA" number for the average premium.  Here are some World Bank numbers for 2010-2012 for per-capita health expenditures:

Year Expenditure Percent Change
2010 8254
2011 8467 2.6%
2012 8895 5.1%
2013 9125 (est) 2.6% (est)
2014 9361 (est) 2.6% (est)

I'm using the 2010-2012 average growth to compute the numbers for 2013 and 2014.  When you do the whole thing, growth from 2010 (where we had the average premium of $215) to 2014 is 13.4%.  That would make the new average premium $244.  Note that this number is conservative; in reality, a lot of the per-capita spending growth occurs with the elderly, who are covered by Medicare.  So we might reasonably expect that the "if ACA didn't exist" premium, based solely on cost inflation, could be even lower.

OK, we're getting there.  Now, we know that the average person who got a subsidy probably did very well under ACA.  But what about the people who didn't get a subsidy?  On average, they're paying $346/mo for a QHP, when without the ACA laws they could expect to be paying $244.  So they're paying $102/mo, or $1224/yr, more under ACA.

We're now in a position to calculate the total amount spent on the QHP provisions and subsidies for ACA.

87% of the 7.3M on the exchanges get a subsidy of $264, so 7.3M * 87% * $264/mo * 12 mo = $20.1B/yr in subsidies.  (Note that this number doesn't jibe with the CBO number of $17B in Table 1, presumably because the $20.1B is for a full year and the $17B is for about 7 months of a fiscal year, with February, March, and April having a big ramp-up.)

Then we have 13% of 7.3M = 950K people on the exchanges with no subsidy, and another 8.0M people off-exchange, for a total of 8.9M who are paying the full freight of the new laws, which we computed to be $1224/yr, so they're paying $10.9B/yr.

$20.1B in subsidies + $10.9B for the full freight people = $31.0B a year as the total cost of the QHP and subsidy provisions of ACA.  (Note that I'm leaving out the risk corridor payments.  They make things even worse, but not that much worse.)

Now, I'm going to make the assumption that the $20.1B is distributed evenly across every taxpayer in the US.  The most recent IRS statistics show that the number of returns filed in 2012 as classified by filing status (Excel) shows:

Filing Status Returns Taxpayers
Married Filing Jointly 53.7M 107.4M
Married Filing Separately 2.7M 2.7M
Heads of Household 21.8M 21.8M
Surviving Spouses 0.1M 0.1M
Filing Single 66.7M 66.7M
Total Taxpayers 198.6M

Again, this number is conservative, because it doesn't account for people who paid no federal tax.  But based on this number, every one of those 198.6M taxpayers in the country (feel free to tweak this number up by a bit to account for it being 2014) is paying out $101/yr for the ACA subsidies.  So far so good.

But wait!  The 8.9M people who don't get subsidies are paying not only that $101/yr, they're also paying the $1224/yr for the increased premiums, for a grand total of $1325/yr. That's more than 13 times what the average taxpayer pays.

Put another (and even more horrifying) way, 4% of all taxpayers are paying for 35% 38% of the cost of the QHP and subsidy provisions of ACA.

That doesn't sound very fair, does it?

But maybe those 8.9M are very wealthy, you say.  I don't have any data on the income distribution.  We know that their incomes are greater than 400% of the poverty level, or they'd get subsidies.  But consider the small business owner or the independent contractor.  Some of those people are wealthy, but the vast majority are living solidly middle-class existences.  I'd be surprised if the majority of them made more than $100K/yr.  Those are the people we're burdening with a hefty chunk of this law.

On-balance, I favor a lot of the provisions of the QHP and subsidy portions of ACA.  But if you're going to embark upon this grand redistribution of wealth, the least you can do is spread the burden fairly.

UPDATE 11/8/14:  If you take out the filers with less than $10,000 adjusted gross income, you wind up with about 172M taxpayers.  That's probably a better proxy for who's paying for the general fund stuff.  If you use that number, then every taxpayer is paying $122/yr for the subsidies and the 8.9M full-freight people are paying $1346/yr each, for a total of $12.0B.  So then 5% of taxpayers are paying for 39% of the total.  Not a lot better.

Also fixed computation error (see strikethru).

UPDATE #2:  I found a whole bunch of CMS data on per-capita healthcare spending and consumption (see here, here, and here) and was able to cook it down to get a better number for the 2010-2014 increase in personal health care consumption, ages 0-64 (so no Medicare taken into account).  The number is 16.1%.  Using that number and the 172M taxpayers revision would make the following changes to the model:
  • "What if there is no ACA" average premium: $250/mo.
  • Contribution of excess premiums to total cost of QHP and subsidies: $96/mo/person, $1152/yr/person total $10.3B/yr.
  • Subsidy cost shared by 172M taxpayers:  $117/taxpayer
  • Total cost of QHP and subsidies: $30.4B.
  • Yearly amount paid by full-freight QHP payers: $1275/yr., or $11.3B.
  • So 5% of taxpayers pay 37% of the total cost of ACA.


Yancey Ward said...

Radical Moderate,

I looked it over, and your math seems to be accurate, and your assumptions seems to be solid. It is actually a bit better than I expected- I had thought the non-subsidized would be carrying a bigger load, but then the program is not fully ramped up, either. So we shall see.

The only caveat I would offer is that there are likely to be some subsidized who are still bearing some of the load. How many of that 87% that is of the 7.3 million, I don't know- but the subsidies can be between $102 and $0 dollars. I don't think it would affect the calculation a lot, but some.

TheRadicalModerate said...

Thanks, Yancey. BTW, I found a bunch of CMS data and after cooking it down (I've got molten bits of Excel all over my sleeves...) it looks like the actual 2010-2014 inflation for ages 0-64 is about 16.1%. Bottom line: 5% of taxpayers (now defined as people who have more than $10K AGI) paid 37% of the cost.