As the second decade begins for the Affordable Care Act health insurance exchanges, it is clear that they have fallen short of certain expectations. The exchanges have not achieved the savings that Obamacare supporters promised, and enrollment has never reached the level predicted by the Congressional Budget Office.
In a recent study for the conservative Paragon Institute titled “The Shortcomings of the ACA Exchanges: Far Less Enrollment at a Much Higher Cost,” authors Daniel Cruz and Greg Fann argue that Obamacare’s “individual market policies have produced far less enrollment at a much higher cost than projected.”
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After the Affordable Care Act was enacted in March 2010 and its healthcare purchasing exchanges became operative in fall 2013, President Barack Obama claimed his plan would reduce a typical family’s premiums by $2,500 a year.
Instead, exchange premiums have increased much faster than the rate of inflation.
The average monthly premium for an exchange policy for a 40-year-old couple with two children in 2015 was $826. In 2024 that premium is $1,525, a real increase of 84%. A 28-year-old single person has seen a real increase of 72%, from $235 to $406.
One reason for the steep increase is that insurers set premiums too low in the early years of the exchanges.
“They radically underpriced premiums in 2014 and 2015,” said Cruz, who is a co-founder and CEO of Presidio Healthcare. “The premiums were based on modeling. Insurers were predicting what the average level of risk would be in this market.”
The level of risk was much higher than what insurers initially predicted.
Before Obamacare, insurers could manage risk by refusing to sell to people who had a preexisting condition. Obamacare forced them to sell to all comers.
“That was an environment that was not easily predictable, and there was a temptation to price low to get enrollment," Cruz said. "It wasn’t until 2015 that insurers could base premiums on actual experience in the exchanges."
Fann, a consulting actuary at Axene Health Partners, suggested the premiums subsidies provided by Obamacare created a risk pool that was much more expensive to insure.
“The subsidies did not really expand coverage but rather allowed [exchanges] to absorb the unhealthy population and attract new enrollees whose premiums were based on their income rather than the healthcare costs of the risk pool, at the same time repelling younger and healthier people,” Fann said.
In 2021, Democrats in Congress boosted the subsidies available to help pay for premiums on the exchanges.
“The enhanced subsidies have really helped people afford coverage at a time that they are being squeezed by rising prices for housing, food, and other necessities as well,” said Cheryl Fish-Parcham, director of private coverage at the liberal Families USA.
The subsidies are adjusted for income so that those earning lower incomes receive a higher subsidy. A 40-year-old couple with two children earning 200% of the federal poverty level ($60,000 for 2024) will receive a monthly subsidy of $1,425 in 2024, up from $454 in 2015. A 28-year-old at 200% of the federal poverty level ($29,660 for 2024) has seen his or her monthly subsidy increase from $111 in 2015 to $357 in 2024.
Yet that doesn’t reduce overall costs. It just shifts them to taxpayers.
The increase in subsidies since 2021 has helped boost enrollment substantially. From 2021 to 2023, the number of people enrolled in the exchanges grew by 4.5 million, the biggest increase since 2014-2016.
Yet enrollment has never come close to the estimates of the CBO. Shortly after Obamacare became law in 2010, the CBO predicted 24 million people would participate in the exchanges by 2019. The actual number enrolled that year was 11.4 million. In 2023, enrollment was 16.4 million.
“The CBO overestimated the number of people who would get subsidies,” Cruz said. “They predicted that 20 million people would get subsidies. They thought the subsidy structure would be so good that we’d just pile people into the exchanges.”
Cruz also noted that Obamacare limited what insurers could spend on nonmedical expenses such as commissions to insurance agents. One unintended consequence was a reduction in the number of insurance agents.
“Commissions went away, and as a result, agents went away,” Cruz said. “So, there was no longer a third party with an incentive to help drive people into the exchanges.”
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In their study, Cruz and Fann noted that by 2021 Obamacare had only increased private insurance coverage by 1.6 million people. That same year, taxpayers spent $60 billion on insurance subsidies for the exchanges.
“Obamacare is designed to benefit older, sicker people, and it repels young, healthy people,” Fann said. “The design of [Obamacare], the way the subsidies are structured, creates this very unbalanced, inefficient system.”