Open enrollment for the Affordable Care Act (Obama Care) will close at the end of March 2014. The original goal of 6 million enrollees will be tough to achieve. According to the Department of Health and Human Services there were four million enrollees through Feb. 25, 2014.The actuarial science that accompanied the introduction of the new healthcare act is a complicated set of metrics that ultimately determined how much to charge to capture the costs associated with reimbursing medical expenses (less deductibles and co-pays). There are several revenue sources attached to the legislation that fall outside direct premium payment, but two expense factors associated with coverage will soon provide a clearer picture of the true cost of the program.
The first and most dramatic expense is the inclusion of applicants with serious pre-existing conditions. It is not uncommon for mounting medical bills to force a family into bankruptcy. The private markets have typically excluded applicants that had specific pre-existing medical conditions to limit the insurer’s financial exposure. Part of the offsetting premiums to cover such catastrophic illness through the Affordable Care Act would be premiums from a large population of younger, healthier adults that would rarely need significant medical services.
According to initial objectives, the plan needed around 38 percent of the new enrollees to be under the age of 35. Both state exchanges and federal enrollment have hovered between 30 and 31 percent. This less than expected enrollment of younger adults breaks with preliminary actuaries and will lead to increased costs.
A secondary cost associated with expected enrollment involves subsidies for applicants below certain income thresholds. Currently, 83 percent of the applicants have qualified for federal subsidies. It is difficult to ascertain the government’s expected levels of assistance, but early figures indicate this may be a larger expense than originally anticipated. Some of these costs are to be offset by higher taxes on higher wage earners and savings from Medicare.
The bottom line is that the cost of the plan will likely not conform to the original modeling provided, and additional revenue (taxes) will be needed in the future. Despite the continued debate, this plan may be modified in the future, but repealing it would be as likely as repealing Medicare.
