A Simple Yardstick for HIE Enrollment: CBO’s Revised Estimate Looks Like an Outer Boun


CBO* estimates that roughly 20 million subsidy-eligible persons will enroll on the individual health insurance exchanges (HIEs) by 2017, and that this level of enrollment will remain roughly stable over the forecast period (2023)


We believe the 20 million enrollee level is much more of an outer-bound than an expected value; and, barring changes in the Affordable Care Act (ACA) that enrollment will deteriorate over time, rather than remaining stable

Using data from the last 14 years of the employer sponsored insurance (ESI) market, we compare the percentage of cash wages employees pay for their share of health insurance (‘price’) to acceptance rates for employer sponsored insurance (‘quantity’) to establish a simple health insurance demand curve

Assuming premiums paid by subsidy-eligible households buying coverage on the HIEs are equal to the first year (2014) percent-of-income limits specified in the ACA; and, that the price/quantity relationships evident in the ESI market translate to the HIE market, we would expect HIE enrollment of roughly 23.5 million subsidy-eligible households – essentially on par with the CBO figure

If anything, the ESI-derived demand curve over-estimates HIE enrollment – the uninsured tend to have weaker preferences for health insurance than the insured; ESI enrollment benefits from an ‘enrollment by default’ standard, where HIE participants must actively ‘opt-in’; lower-income (and thus subsidy-eligible) households may place a greater value on the same percentage of marginal income than higher income households; and, lower-income households are on average younger

More importantly, the percent-of-income limits ACA places on households’ premium costs apply only in 2014. In subsequent years, if health cost growth exceeds wage growth – as it is likely to do – households’ HIE premium costs would exceed the 2014 maximums. Absent significant further reforms, subsidy-eligible households would be asked to pay larger percentages of incomes for HIE coverage, thus our expectation (under current law) that HIE enrollment erodes over time

Even if the 20 million CBO figure is right, the roll-out of the individual HIE’s would grow the total commercial (ESI + individually purchased coverage) market by about 11pct in enrollee terms, and 9pct in beneficiary terms. Stretched out over the 3 to 4 years required for the HIE’s to hit peak enrollment, the annual growth effect is around 3 to 4pct in enrollee terms, and 2 to 3pct in premium terms

For the commercial HMOs, the cost of these modest volume gains is a raft of legal, regulatory, and structural changes that are highly adverse – particularly for the larger ‘national account’ oriented commercial HMOs (e.g. CI, AET, WLP, UNH). Chief concerns include shifting of ESI sponsored beneficiaries to (public or private exchanges), where shifted beneficiaries buy less generous (i.e. cheaper) plans from an expanded (including local) list of underwriters, implying both share losses and falling average contract values

Medicaid HMOs (e.g. CNC, MGLN, WCG) are far better positioned. The Medicaid expansion (eventually) should be larger than the expansion of coverage to individuals on the HIEs; the Medicaid HMOs are likely to gain share of Medicaid beneficiaries overall; and, average contract values stand to improve as higher cost dually-eligible enrollees are enrolled

For our full research notes, please visit our published research site.

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