Tax subsidies in Obamacare could push at least half of privately insured, lower-income North Carolinians into the federal health exchange and off of private coverage, critics of the federal health reform law say.
The actual numbers are anybody’s guess at this point. Myriad studies and health care expert opinions abound on how severe, or limited, the shift into the government system might be, with some contending it will be less than 10 percent.
“I don’t think there’s been any definitive, state-by-state study done anywhere” to demonstrate with certainty the magnitude of expected migration from private insurance to a government-run and subsidized health insurance exchange, said Michael Tanner, senior fellow at the Washington, D.C.-based Cato Institute.
The Robert Wood Johnson Foundation, the nation’s largest private nonprofit devoted to public health, has done more than 20 studies attempting to show the size of the shift from private insurance to Medicaid, Tanner said.
“In all of them, [the foundation] found a sizeable crowding out [with] numbers all over the place,” Tanner said.
Crowd-out, in this context, occurs when people abandon private insurance for a government-run program, or extend their stay in a government-run program rather than becoming ineligible and then exiting to private coverage.
Obamacare makes it mandatory to offer health insurance to the uninsured through a federally approved clearinghouse called an exchange. Since the penalty for not offering health insurance will be modest, many health experts believe some companies might discontinue providing employee insurance, multiplying the number of people cast into the federal exchange.
North Carolina chose not to create a state-run health insurance exchange, leaving the federal government in charge of the online marketplace that will offer a limited number of federally approved health plans to Tar Heel State residents.
Had North Carolina expanded its Medicaid rolls under Obamacare, people earning between 100 percent and 138 percent of the federal poverty level would have been eligible for Medicaid, the government insurance plan for the poor and disabled.
But the Republican-led General Assembly voted against expanding Medicaid. Some Republicans cited too many unanswered questions from Washington about regulations and costs. A scorching state audit showing the state’s Medicaid system was in serious financial and operational disarray also prompted opponents of Medicaid expansion to say the program needs to be fixed before it’s enlarged.
So North Carolinians earning between 100 percent and 138 percent of the federal poverty level will buy private insurance from the federal exchange, and will be eligible for lucrative subsidies to do so.
Pam Silberman, president and CEO of the North Carolina Institute of Medicine, which has done research on the implementation of Obamacare, believes the state would have been better served by expanding Medicaid rolls.
She said those in the 100-138 percent range of the federal poverty level must pay 2 percent of their annual incomes as premiums to the federal exchange. Subsidies would pay the balance.
“Two percent, for people living in poverty, while it doesn’t sound like a lot to us, it will be a lot to those families,” Silberman said. “Quite frankly, it’s going to be pretty unaffordable to them.”
North Carolina residents in higher income brackets — up to 400 percent of the federal poverty level — also can purchase subsidized insurance from the health exchange if their employer-provided insurance premiums equal more than 9.5 percent of their household income or the plan pays less than 60 percent of the cost of covered benefits. Subsidy amounts decrease as income levels rise.
Devon Herrick, senior fellow and health economist at the Dallas, Texas-based National Center for Policy Analysis, believes crowd-out will be significant.
“You have 367,000 people between 100 and 138 [percent of the federal poverty level] who already have [private] coverage” in North Carolina, Herrick said.
Crowd-out “could be as high as 50 to 75 percent,” or between 183,500 and 275,250 people foregoing private coverage for the federal option, Herrick said. “Thirty [percent] would be the lower bound” — or roughly 110,000 people.
Herrick bases those projections on research by Jonathan Gruber, a professor of economics at Massachusetts Institute of Technology and one of the architects of Obamacare, and Harvard economics professor David Cutler, former senior health care advisor to President Obama.
Gruber and Cutler have studied the crowd-out effects during past waves of national Medicaid expansions. Gruber recently released research showing some 60 percent of marginal enrollees in the government-operated State Children’s Health Insurance Program were lured from private coverage.
Michael Cannon, Cato Institute director of health policy studies, pointed to a growing body of evidence on the scope of crowding out.
“Medicaid expansions in Arizona, Delaware, Maine, and Oregon did not reduce those states’ uninsured rates at all, but they were accompanied by declines in private coverage,” Cannon said, drawing from a study of the Florida-based Foundation for Government Accountability.
Silberman does not foresee large crowd-out numbers.
“We have not done a separate analysis of it” at the North Carolina Institute of Medicine, Silberman said, adding, “I have not seen any data to suggest it’s going to be a big problem.”
Silberman said her skepticism is rooted, in part, in a study the Cecil G. Sheps Center for Health Services Research at the University of North Carolina-Chapel Hill conducted for the North Carolina Division of Medical Assistance. It identified crowd-out involving the state’s CHIP program from Oct. 1, 1998, to Sept. 30, 1999.
The study found an upper bound of 8.3 percent of parents who pulled their children from private coverage to enroll them in the CHIP program.
Steve Pizer, an associate professor of Health Policy and Management at Boston University, conducted a national study for the Veterans Administration that, in part, dealt with crowd-out implications of Obamacare.
While acknowledging his study had few specifics at the state level, Pizer is confident the “vast majority” of those getting insurance on the federal exchange in North Carolina “are going to be people who didn’t have coverage before.”
“They’re not going to be coming from people who have insurance in the private sector,” he said. “That’s not the way it’s going to work.”
The Cato Institute’s Tanner said the size of crowd-out caused by the health care exchanges is important because he believes the system will have an expensive, negative impact in the health insurance market.
“First of all, if these things drive up the cost of insurance, which they’re likely to do, the subsidies aren’t going to be sufficient to pay the costs anyway,” Tanner said. “Probably a third or more of the people … are going to end up paying a lot more for insurance than they’re paying today, even with the subsidy.”
Already, without the regulations and revenue streams for Obamacare fully developed, the Congressional Budget Office is saying the program will have a $2.5 trillion cost in its first 10 years, three times the initial price tag promised by Obama, Tanner said.
As it stands, insurers in North Carolina who want to sell policies on the federal exchange would pay a 3.5 percent premium surcharge to do so. Insurance companies are likely to raise rates on employer-provided coverage to offset those costs.
“That’s money coming out of the workers’ wages one way or another — in lost wages or lost jobs,” Tanner said. “One way or another, employers will offset that cost. They don’t eat it. They pass that cost on to employees.”
Dan E. Way (@danway_carolina) is an associate editor of Carolina Journal.