Health-Exchange Prognosis: Unclear

via The Wall Street Journal. A version of this article appeared September 28, 2013, on page A2 in the U.S. edition of The Wall Street Journal, with the headline: Obamacare Prognosis: Unclear

When the health exchanges created by the Affordable Care Act open for enrollment Tuesday, their success will be judged against a host of imperfect projections. How many people will sign up? How much of a dent will the exchanges make in the number of uninsured? How much will they charge for premiums?

Providing a clear answer has proved tricky for economists and pollsters, underscoring the difficulty in predicting human behavior with economic models and the fallibility of employer surveys on Obamacare. “I don’t think we know what’s going to happen,” said Robert I. Field, professor of law and of health management and policy at Drexel University. “I think the possibilities are wide open, and a lot is riding on it.”

The Congressional Budget Office has forecast that seven million people will enroll in the exchanges next year, down from its initial projection of nine million, which has been updated several times over developments such as the Supreme Court’s decision last year to let states decide whether to implement expansion of Medicaid without penalty.

A Citigroup survey of investors shows their average expectation is of four million, though Citigroup analysts think that is too low. Other surveys, conducted by more than a dozen firms, ask employers if they expect to cut health coverage in the near term as a result of the exchanges. These indicate that anywhere from 2% to 20% of employers are likely to cut health benefits. Forecasters at the Rand Corp. think tank aren’t even predicting what will happen before 2016.

The success of the exchanges will depend on the behavior of employers—everyone from family firms to multinationals—and of individuals deciding whether to sign up. Forecasters have ways of guessing at how health-insurance decisions are made, but they acknowledge the difficulty of their task.

“We don’t have experience with this kind of major change in health policy,” said Christine Eibner, senior economist at Rand in Arlington, Va. “There are so many movable parts.”

Economists use what they call microsimulations to make predictions. For health-care reform, these microsimulations add up to create a virtual health marketplace, in which insurers, employers and individuals decide how to respond to the sweeping changes in insurance options. The microsimulations draw upon the experience of Massachusetts, which in 2006 sought to make insurance virtually universal using methods similar to the more-recent federal law. They draw upon survey data describing people’s expenditures on health. And they make assumptions about how each person weights different priorities, such as reducing costs or managing risk.

The biggest question mark is whether individuals will act rationally, as the models assume. That will be difficult for insurance shoppers to pull off, considering they have imperfect information about their own health and future medical needs. Further compromising the potential for rational actions: A majority of people say in surveys they don’t understand the new marketplace. There also are other factors that could tug at the rationality of decision making, such as advertising campaigns promoting or denigrating the exchanges.

“That could have a major effect, and is something we are not including,” said Matthew Buettgens, a senior research analyst at the Urban Institute think tank, referring to the ad campaigns and other factors that may make health consumers less than rational. “I don’t think anyone is modeling that.”

The modelers also conspicuously exclude from consideration one sort of indicator that has received extensive press coverage: surveys of employers asking them whether they expect to cut their health coverage after the exchanges launch.

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Eric is a Producer at Lockton Insurance Brokers, Inc., the world’s largest privately held commercial broker. Eric has over 23 years of experience in the insurance industry and has spent the last 11 years with Lockton. Eric specializes in Health & Welfare Benefits, Retirement Planning, and Executive Benefits. Eric's clients utilize his expertise in the areas of Plan Due Diligence, Transaction Structure, Fiduciary Oversight, Investment Design, Compliance and Vendor negotiation to improve the operational & financial outcome for each client. The Benefit Blog is a place to share that expertise and industry news.
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