TWO NEW REPORTS by the Center and a recent Forbes.com analysis re. why the Ocean State cannot support its costly health benefits exchange.[button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: $38 million or Zero?[/button] [button url=”http://www.rifreedom.org/exchange/” target=”_self” size=”medium” style=”royalblue” ] Report: No Legal Barriers[/button]
Implementation of the Affordable Care Act (ACA) in Rhode Island, with both the health benefits exchange (called HealthSource RI) and the expansion of Medicaid to cover able-bodied low-income adults, has been a lesson in government operation. The policies were put into place — and over $100 million in federal tax dollars were spent — without significant public discussion and with no plan to cover the costs, and we’re now learning that projections of costs were wrong in several critical aspects.
The total cost to the state in fiscal year 2015 (FY15) could be as much as $100 million.
When the General Assembly declined to create a health benefits exchange through legislation, now-Democrat Governor Lincoln Chafee did so by executive order. In the text of that order, issued September 2011, the governor explicitly decreed that “No state general revenues shall be used for purposes of the [exchange], and no liability incurred by the [exchange] or any of its employees may be satisfied using state general revenues.”
The order mentions the possibility that funds would come from “insurers or other entities,” so it’s probable that the governor’s office expected the exchange to be self-sustaining, as a government-run start-up company.
A grant application to the federal government in March 2011, by Deb Faulkner, the state’s Exchange Project Coordinator, projects that 2014 would find 127,000 Rhode Islanders enrolled in private health plans through the exchange, with 32,000 of them paying the full cost of their coverage, with no state or federal subsidies. Another 77,000 people were expected to be enrolled through the business-focused component of the exchange, called the Small Business Health Options Program (SHOP).
Under those circumstances, the governor may have expected small transaction fees to be sufficient to cover the cost of the exchange.
In May 2013, another grant application, this one from HealthSource RI director Christine Ferguson, cites a projection developed in cooperation with MIT economics professor Jonathan Gruber. Five months before the launch of the exchange, the state was still expecting 64,000 private enrollees, with 20,000 of them paying the full cost, plus 17,000 in SHOP.
Local news reports cite an “unofficial” memo from the U.S. Centers for Medicaid and Medicare to say that actual enrollment is “far above federal targets.” However, the results are well below the more-official expectations in the applications. As of March 8 of this year, the exchange had enrolled 19,690 people (17% of whom had not yet paid and arguably should not be included until they do), with only 2,284 paying the full cost, plus 795 in SHOP.
The following chart compares the May 2013 projections with HealthSource RI’s results thus far.
In total, the projection was almost four times higher than the results that the exchange had achieved by March 8. Looking at just the full-cost individual plans, the projections were overly optimistic almost by a factor of nine times. This leaves the exchange’s annual budget of nearly $25 million up in the air.
As if the failure of the exchange’s cost structure weren’t bad news enough, the results from the Medicaid portion of the ACA make matters worse.
According to a report by Philip Marcelo, in today’s Providence Journal, the state had expected 51,000 people to enroll in Medicaid within the first 18 months after the introduction of the Medicaid expansion and the health benefits exchange. In actuality, six months into that period, Medicaid enrollment is already up by 48,602.
The following chart shows the trends in each category of enrollee, as HealthSource RI has reported them (roughly month to month). The dark red area represents Medicaid recipients.
After an initial surge leading up to the deadline to receive coverage starting January 1st, enrollment in paid programs has tapered off considerably, while growth in the Medicaid population has remained strong.
The number of people enrolling in paid insurance plans may experience another boost during this month, as the open-enrollment period comes to a close at the end of the month. The flip side of that possibility, however, is that there is no enrollment deadline for Medicaid, so costs may continue to balloon beyond what the RI House Fiscal staff projects.
Multiple calls and emails to various parties for clarification of House Fiscal’s findings have received no reply, as of this writing, but the circumstances may be more dire than is being reported.
According to Marcelo, the House Fiscal staff expects the cost of the Medicaid expansion — which the state government appears to have accepted as an administrative decision, with no public debate at all — to affect the state’s general fund budget for the first time in fiscal year FY17, with an expense of $14.2 million (on a total cost of the expansion of $570 million that year). That amount grows each year, as the state’s contribution phases up to 10% of the $719 million total, or $71.9 million, in 2021.
That isn’t the whole story, however.
Secretary of Health and Human Services Steven Costantino credits the state’s taxpayer-funded public awareness campaign with the high number of Medicaid enrollees. As individuals visit the HealthSource RI Web site, the system tells them whether or not they are eligible for Medicaid. Many of them would have been eligible without the expansion.
According to a HealthSource spokesperson, 33.3% of all Medicaid enrollments through the exchange as of February 8 (or 11,916) would already have been eligible for the public welfare program without the expansion. The federal government only picks up 50-55% of the cost for these Medicaid recipients.
It isn’t clear how (or whether) these enrollees factored into the House Fiscal staff’s analysis, but their cost in FY15 — the budget under consideration right now — could be around $74 million.
In a press conference announcing the Medicaid expansion on the day the Supreme Court ruled the ACA constitutional, in 2012, Costantino estimated that the expansion would only apply to 6,000 to 7,000 people. Even less optimistic estimates made by the RI Center for Freedom & Prosperity at the time put the total cost of the ACA much lower than now appears probable.
As Costantino acknowledges, although insisting it’s an outcome of which to be “proud,” as the state engages in an aggressive campaign to bring in new paying customer’s, it’s not attracting them, but rather new recipients of government handouts.
The people of Rhode Island were never given a chance to fully debate, much less vote on, these changes to government policy. Even now the layers of government spin and incomplete reportage leave them — even their elected representatives — with little understanding of how significant the costs are going to be, especially in comparison with the program they were sold.
Featured image: Stephen Costantino, Lt. Gov. Elizabeth Roberts, and Christine Ferguson at the June 28, 2012, press conference concerning the exchange and the Medicaid expansion.
FOR IMMEDIATE RELEASE; January 16, 2014
Providence, RI – Following the Governor’s Wednesday night address and after initial review of his 2015 budget, where it is obvious that state funds will soon be needed to continue operation of the state’s healthcare exchange, the Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, today called on public officials to consider termination of the state’s operation of the HealthSourceRI exchange, and instead transfer its management to the federal government, which currently operates exchanges in dozens of other states.
The exchange was originally formed in Rhode Island by executive order by Governor Chafee as part of the implementation of President Obama’s Affordable Care Act, which made federal funds available for its construction through the end of 2014. It is anticipated that subsequent operation of HealthSourceRI could cost Ocean Staters over $20 million per year.
“The exchange is a federal mandate, it is very expensive to operate, and it is clear that we cannot afford it once federal funds expire. Our own General Assembly rejected operation of the exchange in the first place, so how can we justify burdening Rhode Island taxpayers with footing the bill,” asked Mike Stenhouse, CEO for the Center, which plans to conduct further research into exploring the feasibility of executing this transfer.
The Rhode Island Center for Freedom and Prosperity, a nonpartisan public policy think tank, is the state’s leading free-enterprise advocacy organization. The Center works to make a profound, positive impact on the lives of every family and business in the state through the rigorous exchange of market-based ideas and reform solutions aimed at restoring economic competitiveness, educational opportunities and – ultimately – hope for a brighter future.
HealthSource RI has published its enrollment numbers from its opening to January 4, after the deadline to enroll for January coverage. In continuation of our series putting the number in context, we herein present them with reference to the federal millions that taxpayers provided in order to create an online government broker for Rhode Island’s extremely limited health insurance options.
According to the Center for Consumer Information & Insurance Oversight, under the federal Centers for Medicare & Medicaid Services, the federal government has given $134.7 million in grants aimed, at least in part, at getting Rhode Island’s Affordable Care Act health benefits exchange, HealthSource RI, up and running. Of that, $99.1 million went directly to the Rhode Island government.
As the following chart shows, even with the last-minute rush for plans, U.S. taxpayers have spent $10,011 in direct grants for each of the 9,902 Rhode Islanders who have officially enrolled (having paid their initial premiums).
Adding in the 1,868 people who have completed the application but not yet paid an initial premium, the per-person subsidy decreases to $8,422.
The largest group of enrollees, however, includes the 24,252 Rhode Islanders who used the subsidized health insurance exchange to discover that they are eligible for free healthcare, through Medicaid or the state’s RIte Care program. (Rhode Island opted to follow the Affordable Care Act in expanding the categories of people who are eligible for Medicaid, to include able-bodied, childless young adults.)
That’s 67% of the 36,022 who have completed the application process, a percentage that’s unchanged from last month. It’s impossible to know how many of those enrollees are new to Medicaid or were already eligible before the Affordable Care Act, but it would appear that the state is well on its way to the 41,185 new people dependent on the government for health insurance that the Kaiser Foundation predicted by 2019. As the Center pointed out when the state was deciding how to respond to the Affordable Care Act, this expansion could cost Rhode Island taxpayers nearly $60 million per year (and almost half a billion dollars in state and federal spending).
On the other side of the spectrum, only 1,545 (like last month, 4%) are enrolling in plans without claiming additional taxpayer subsidies in the form of financial assistance on their premiums and other expenses.
By way of a reminder: According to the Center for Consumer Information & Insurance Oversight, under the federal Centers for Medicare & Medicaid Services, the federal government has given $134.7 million in grants aimed, at least in part, at getting Rhode Island’s Affordable Care Act health benefits exchange, HealthSource RI, up and running. Of that, $99.1 million went directly to the Rhode Island government.
Thus far, U.S. taxpayers have spent $61,532 in direct grants for each of the 1,611 Rhode Islanders who have officially enrolled (having paid their initial premiums).
Adding in the 1,038 people who have completed the application but not yet paid an initial premium, the per-person subsidy increases to $37,421.
The largest group of enrollees, however, includes the 5,280 Rhode Islanders who used the subsidized health insurance exchange to discover that they are eligible for free healthcare, through Medicaid. (Rhode Island opted to follow the Affordable Care Act in expanding the categories of people who are eligible, to include able-bodied, childless young adults.) That’s 67% of the 7,929 who have completed the application process.
Of that number, only 313 (or 4%) are enrolling in plans without claiming additional taxpayer subsidies in the form of financial assistance on their premiums and other expenses.
According to the Center for Consumer Information & Insurance Oversight, under the federal Centers for Medicare & Medicaid Services, the federal government has given $134.7 million in grants aimed, at least in part, at getting Rhode Island’s Affordable Care Act health benefits exchange, HealthSource RI, up and running. Of that, $99.1 million went directly to the Rhode Island government.
With HealthSource RI having now released detailed results for its first month of operation, it’s possible to begin assessing a cost per enrollment. As the following chart shows, thus far, U.S. taxpayers have spent $371,268 directly to set up the site for each of the 267 people who’ve officially enrolled.
Adding in the 925 Rhode Islanders who have completed an application, but have not completed the enrollment process by actually paying their share, the per-person taxpayer cost decreases to $83,162.
Not surprisingly, by far the greatest number of customers, 3,213, have been those who will receive their coverage for free, through the Medicaid program. Bringing them into the mix brings the per-person taxpayer cost to $22,504… just to set up the site, remember, not to partially or fully subsidize their coverage.
Adding in the $35.6 million that the federal government gave to the University of Massachusetts Medical School in order to benefit all New England states (except New Hampshire), the costs per Rhode Island enrollment increases to $504,569, $113,020, and $30,583. However, this number does not take into account individuals who may have enrolled in other states’ exchanges, so only a portion of the total is actually attributable to Rhode Island customers.
Even with implementation of Rhode Island’s health benefits exchange under the Affordable Care Act (ACA), HealthSourceRI, close to 100,000 Rhode Islanders may not have adequate options unless additional provisions are made by the state. Access to affordable health care is one of the most important and personal decisions anyone can make.
Previous reports by the RI Center for Freedom & Prosperity have documented both the financial disincentives created by the ACA when it comes to purchasing insurance and identified and quantified the groups of people who are likely to remain uninsured, perhaps up to 97,000 Rhode Islanders.
Anticipated insurance premium hikes are expected to price many individuals out of the market, notwithstanding the subsidies available through the exchange, and other reasons exist for individuals to elect not to purchase insurance, such as lack of perceived value or concern about paying for controversial services like contraception and abortion. With taxes already at overly burdensome levels, it is critical for Rhode Island to identify and promote alternative programs that will provide many more Rhode Islanders with access to health care, without placing further burdens on taxpayers.
State officials are encouraged to seek additional remedies to address this pending shortfall. The free-market programs recommended in this report by our Center are:
- Mandate-free and mandate-lite, full-disclosure insurance policies
- Interstate insurance sales
- Health care sharing ministries
- Critical illness and accident insurance
Also included in this report are other program recommendations.
It is our Center’s conclusion that it is not feasible that a government-centric, one-size-fits-all approach via the state’s health benefits exchange can adequately address the needs of a highly diverse population. Only with additional patient-centric, consumer-oriented options can we move toward the goal of ensuring that more Rhode Islanders achieve health care and financial peace of mind.
Read our prior Report: Left Behind by Healthcare in RI
With up to 97,000 Rhode Islanders expected to remain uninsured after Obamacare and RI’s health benefits exchange is implemented, our new report recommends free-market policies and solutions to provide affordable health services for many …[button url=”http://www.rifreedom.org/?p=9695″ target=”_self” size=”small” style=”royalblue” ]Read the full report …[/button]
Read the first report in this three-part series here … “Will RIers Purchase Insurance Under Obamacare?”
Read the Part-3 report, Moving Forward with Healthcare in RI
Arranging for health care is one of the most personal and important decisions any of us can make. Across Rhode Island, families and individuals are seeking access to a wide range of affordable health care options that will provide them with peace of mind, health security, and the financial freedom that will enhance their overall quality of life.
However, the number of Rhode Island residents expected to remain uninsured after implementation of the President’s Affordable Care Act (ACA) could range from over half to up to three-quarters of the currently uninsured population of 124,000, or approximately 70,000–97,000 people in the state.
Consistent with findings from other government and national studies, “Left Behind by Health Reform in RI” further breaks down these figures by identifying the specific groups of people in the Ocean State who are likely to remain without insurance, whether privately owned, subsidized via the state exchange, or via Medicaid.
Despite state government efforts in the past to increase health insurance coverage, the uninsured population has steadily risen over the past decade. So it should come as no surprise that yet another government-centric approach to healthcare, such as the ACA, will not achieve the “near universal” results it was broadcast to produce.
The Center previously published a report (Will Rhode Islanders Purchase Insurance Under Obamacare?) that identified the broad financial disincentives for a significant number of Ocean State individuals and families to obtain private health insurance under ACA and its health benefits exchange. For these and other reasons described in this report, large numbers of Rhode Islanders will continue to lack access to adequate health services.
The summary table below identifies and quantifies the subpopulations of residents in Rhode Island that are expected to continue to include large numbers of uninsured. Detailed discussion of each group is provided in the body of the report.
The RI Center for Freedom & Prosperity recommends that public officials in Rhode Island should not sit back on their hands and expect implementation of ACA alone to provide sufficient reform to the state’s health care system to adequately ensure that all residents of the state have access to affordable, quality care. Indeed, our state must not forget about those who will be left behind by ACA. State officials are encouraged to seek additional remedies to address this pending shortfall.
It is not feasible that a government-centric approach can take into account all of the complexities of the vast private healthcare market, or that a one-size-fits-all solution can adequately address the needs of a highly diverse population, as described in this report. Differing financial circumstances and widely varying personal motives for distinct populations cannot be served in this manner. Only a patient-centric, consumer-oriented, free-market approach can solve this riddle.
In this regard, the Center will publish a third report in this health care series that will propose market-based solutions to address the access-to-health-services shortfall… without requiring additional taxpayer funding.
The issue of ensuring that all Rhode Islanders have access to affordable, quality health care has long been on the state’s agenda. The state has tried a variety of public policy solutions over the past two decades to address the issue. A few of the measures that have been aimed at reducing the number of uninsured and expanding access to care include:
- Several expansions of RIte Care eligibility, including covering pregnant and post-partum women between 185 and 350% of the federal poverty level (1994), covering children under 250% of the poverty level (three separate expansions in 1994, 1996, and 1997), and children of undocumented immigrants (1999).[i]
- Creation of the premium assistance program RIte Share for Medicaid-eligible persons offered employer-sponsored insurance (2001).[ii]
- Creation of the RI Office of Health Insurance Commissioner in 2004, with a mission to “broaden the accountability of health insurers,” as well as “Protecting consumers… Encourag-ing fair treatment of medical service providers… Ensuring solvency of health insurers… [and] Improving the health care system’s quality, accessibility and affordability.”[iii]
- Creation of the HEALTHpact insurance product, first offered in October 2007, to encourage small businesses to offer insurance to employees.[iv]
Despite these and other efforts, however, the number of uninsured in Rhode Island has steadily risen over the past decade. In 2000, approximately 6.9% of the state’s under-65 population was uninsured,[v] accounting for approximately 62,000 persons.[vi] By 2012, the uninsured rate had climbed to 13.4% of the under-65 population, totaling roughly 124,000 Rhode Islanders.[vii]
Rhode Island was not alone in seeing the number of uninsured persons explode over the past decade. As a result, in 2010 Congress passed and the President signed the Patient Protection and Affordable Care Act (hereinafter called “ACA”), which was proposed as a way of achieving “near-universal” health care coverage.[viii]
The state of Rhode Island has chosen to move forward aggressively to implement the ACA, including setting up a state-run exchange for individual and small-group purchasers,[ix] as well as embracing the expansion of Medicaid that the U.S. Supreme Court made optional for states in its 2012 ruling on the constitutionality of the act.[x]
But even with implementation of ACA, there is likely to remain a substantial number of uninsured persons in Rhode Island and nationally. The question then becomes, what can policymakers in Rhode Island do to ensure that the remaining uninsured are able to access and fund the health care they need?
This “Left Behind by Health Reform in RI” paper assesses this question, first by identifying and describing several specific subpopulations that make up Rhode Island’s 124,000 uninsured persons.
In an upcoming report, the Center will explore several options that Rhode Island’s policymakers, civic leaders, and individual citizens might be able to promote or pursue in order to obtain either health insurance as traditionally understood or alternate health care financing sources. That paper will offer several specific policy recommendations for the state, all of which have the benefit of not adding costs to citizens or the state while generally preserving or expanding individual freedom for residents of Rhode Island.
It is the hope of the RI Center for Freedom & Prosperity that this “Left Behind by Health Reform in RI” paper can stimulate thoughtful discussion about how best to address the substantial number of uninsured residents who are likely to persist in that condition even after implementation of the ACA. By taking a proactive lead on this issue, Rhode Island can become a national leader in health care reform and serve as a model for other states to follow.
Uninsured After ACA
Even after the ACA is fully implemented in 2016,[xi] it is widely expected that a large number of persons will remain uninsured.
While estimates vary, depending on source, the Congressional Budget Office and Congress’s Joint Committee on Taxation anticipate the number of uninsured in America roughly to be cut in half after implementation of ACA, reducing the number of uninsured from 56 million persons to only 30 million after implementation.[xii] If this is accurate, the national uninsured rate would decline to approximately 11%, an improvement from the current 20% estimated rate.[xiii]
For Rhode Island, results would likely be modestly better, owing in large part to having an already lower rate of uninsured as well as a smaller-than-average population of undocumented immigrants. The number of uninsured persons in Rhode Island has recently been estimated to be 124,000, or 13.6% of the state’s under-65 population.[xiv] A paper by the Robert Wood Johnson Foundation estimated that approximately 53,000 Rhode Island residents would remain uninsured after ACA implementation, reducing the rate of uninsured to 5.8%.[xv]
But there is good reason to believe that these projections substantially overestimate the number of people who will gain insurance under ACA, while also underestimating the number likely to lose insurance coverage. The key reasons that the number of uninsured in Rhode Island may not decline as substantially as predicted include:
- The tax penalty for not purchasing health insurance is lower (often much lower) than the expected after-subsidy out-of-pocket premium for purchasing insurance.
- Younger persons are likely to see premiums rise substantially above current rates, pricing many of them out of the market and exempting them from the mandate.
- ACA’s “guaranteed issue” and “community rating” requirements create incentive for relatively healthy youths to delay insurance purchase until they are sicker and older.
- The IRS is limited in its ability to collect the tax penalty for not purchasing insurance, only being permitted to reduce tax refunds.
- Small businesses, which are least likely to offer insurance to employees today, are exempted from the requirement to provide insurance to employees, and tax credits to help with the cost of providing coverage are too small, too complex, and temporary, limiting their ability to expand coverage to employees of small firms.
- Large employers subject to the employer mandate generally already provide insurance to employees, and many of those that do not (particularly in the restaurant and retail industries) are able to shift employees to part-time status to avoid the penalty.
- Even with the penalty, larger firms employing mostly low- and moderate-income employees may find it financially advantageous to terminate coverage and pay the fine rather than paying health insurance premiums.
- Health insurance is considered to be a relatively inelastic good by economists, meaning that a moderately lower out-of-pocket premium payment paired with a weak penalty for not purchasing insurance is unlikely to prompt large numbers of people to purchase insurance.
Below are several communities and demographic groups that are likely to continue to see relatively high uninsured rates in 2016 and beyond.
Young & Invincible
A large component of the uninsured population is the so-called “young invincibles,” a group that can be generally thought of as healthy and under the age of 35. For this population, often just starting their careers and earning relatively modest incomes, with few health needs and little worry about paying for medical care, health insurance is simply not something they place much value in, especially if premiums are much higher than might be considered actuarially appropriate. One of the primary purposes of the individual mandate in the ACA is to get this relatively young and healthy population who might not ordinarily purchase health insurance to do so, which should bring down premiums for the rest of the population, if successful.
The past experience of the eight states that enacted both guaranteed issue and community rating requirements in their individual health insurance markets in the 1990s strongly demonstrate why such a mandate might be considered necessary: All eight states saw young and healthy policyholders drop coverage as their rates rose beyond actuarially justifiable premiums, leading to higher rates for remaining policyholders, which in turn set off another round of younger and healthier persons (compared to those remaining) dropping coverage, again raising rates for those remaining. This process continued in all eight states, creating a “death spiral” in premiums that did little to lower the number of uninsured (and may in fact have increased the number of uninsured), drove premiums to levels unaffordable for most, and caused most insurers to exit these markets.[xvi]
However, the mandate under ACA is relatively weak, because for most, the cost of paying the tax penalty is less — in many cases, far less — than paying insurance premiums.[xvii] Moreover, the ability of the IRS even to collect the penalty is extremely limited; it is only allowed to reduce tax refunds, and no criminal or civil charges may be filed, nor wages garnished or bank accounts seized.[xviii] It is therefore highly questionable whether much of Rhode Island’s “young invincible” population will in fact purchase insurance.
For example, a young, single person in his or her mid-twenties in Rhode Island with an annual income of $32,000 (279% of federal poverty level) would under ACA be expected to pay approximately $2,850 out of pocket for a “Silver” level plan, compared with a $695 penalty that can very easily be avoided by minimizing overpayments to the IRS.[xix] For many “young invincibles” who value disposable income over insurance benefits they are unlikely to use, the decision to remain uninsured will be an easy and predictable one.
This has significant ramifications, because Rhode Island’s “young invincibles” comprise up to half of the uninsured.[xx] Of 124,000, approximately 31,000 to 63,500 are likely in this “young invincibles” demographic, most of whom will find it a more sensible decision to remain uninsured and pay a modest or negligible penalty.[xxi] This does not include any currently insured Rhode Islanders who might drop coverage as their premiums rise, which could add thousands or even tens of thousands to the number of uninsured.
As discovered by the eight states that passed guaranteed issue and community rating laws in the 1990s,[xxii] individuals can “game” the system by waiting to purchase health insurance until such time as they need to obtain relatively expensive health care. This practice drives up the price of insurance, as insurers end up with a covered population that is less healthy than average, and begins another “death spiral” in premiums that actually increases the number of uninsured, significantly raises premiums, and drives insurers from the market.
ACA effectively imposes guaranteed issue and community rating on insurance markets throughout the country, requiring that insurers accept all who apply and that all insured receive the same premium, adjusted only for age, location, and possibly tobacco use. The law also prohibits limitations on the treatment of preexisting conditions.
In an attempt to ensure that “death spirals” do not occur in insurance markets, ACA contains two provisions designed to minimize the incentive to delay obtaining insurance until expensive care is required. The first is the individual mandate, which requires that most persons obtain health insurance or pay a tax penalty. The second permits states and insurers to limit “open enrollment” to a specific period of time, meaning that those opting to remain uninsured run the risk of not being able to immediately obtain health insurance after discovering they need expensive health care.
Despite these provisions, the guaranteed issue, community rating, and preexisting conditions components of ACA still create significant incentives for persons to avoid purchasing health insurance until they feel they need it.
As noted before, the difference between paying for health insurance and paying the tax penalty for remaining uninsured can be substantial. The difference is especially stark at higher income levels. For example, a married couple, both age 37, with two children and annual income of $82,000 (348% of federal poverty level) would face after-subsidy out-of-pocket premiums of approximately $7,788, while the tax penalty for remaining uninsured would be only $2,085 (again assuming it is collected), a difference of $5,703.[xxiii]
Remaining uninsured may represent an attractive option for this family, especially if either spouse is self-employed. Under ACA regulations proposed by the U.S. Department of Health & Human Services, self-employed persons would be eligible to purchase health insurance year-round with no enrollment period restrictions.[xxiv]
Past research on Rhode Island’s uninsured population found that 11.2% of Rhode Island’s non-elderly adult (18–64) uninsured are self-employed,[xxv] and several thousand more uninsured are likely dependents of these self-employed individuals.[xxvi] This suggests that between 12,000 and 17,000 self-employed individuals and dependents are currently uninsured in Rhode Island, possibly more.
For this population, limits on open enrollment would not be an obstacle to obtaining health insurance only when it is needed, and they and their dependents might find it advantageous to remain uninsured knowing that they could reap substantial savings while still having the ability to obtain insurance when they need it.
It should be noted that the self-employed category tends to generally be older. Nearly 69% of Rhode Island’s self-employed are between the ages of 35 and 64.[xxvii]
An additional population beyond the self-employed that may engage in some degree of gaming will be those Rhode Islanders whose employers drop coverage and raise wages and salaries with the expectation that employees can find coverage in the exchange, and who then elect not to purchase coverage until they feel they need it. This group is discussed below in the “At Risk” section.
The previous two groups described were assumed to be subject to the penalty tax of ACA, and that this factor is likely to weigh in the decision-making process of uninsured individuals considering the purchase of health insurance. For the following two groups, however, this is not the case: They are effectively exempted from the law’s requirement to obtain coverage, and for them, the decision to remain uninsured is likely to be an easier one.
The first group are those earning less than 100% of the federal poverty level or who earn 138% or less of federal poverty level and do not have access to affordable employer-sponsored insurance. This population is eligible for Medicaid and can sign up at any time. Nearly half of Rhode Island’s uninsured population is under 139% of the federal poverty level,[xxviii] and most would be eligible for coverage under the Medicaid expansion in which the state has opted to participate. (RiteCare already extends eligibility beyond what current federal law requires, including to parents with children under 18 and family income of 175% of the federal poverty level.)[xxix] This group is exempt from the mandate, and those in it do not have to pay a penalty if they don’t enroll.
Not all Medicaid-eligible persons enroll. Analysis by the Urban Institute found that approximately 13,000 adults in Rhode Island are currently uninsured and eligible for Medicaid.[xxx] An additional 9,500 children are estimated to be uninsured but eligible for either Medicaid or Children’s Health Insurance Program (CHIP) under current eligibility standards.[xxxi] Some of these may enroll as a result of publicity surrounding implementation of ACA, or if the enrollment process becomes less complex. But many are likely to remain uninsured as they are now.
In addition, an estimated 38,000 adults[xxxii] in Rhode Island will become newly eligible for Medicaid under ACA,[xxxiii] many of whom are unlikely to enroll. The Congressional Budget Office estimates that only 57% of newly eligible persons will enroll in Medicaid,[xxxiv] which would leave more than 16,000 Rhode Island adults uninsured in addition to those currently eligible adults and children who are not enrolled in Medicaid.
The other group exempted from the mandate to purchase health insurance is individuals and families who would have to pay premiums in excess of 8% of their income.[xxxv] This group will largely be composed of those with incomes above 400% of the federal poverty level, who would have to pay the full, unsubsidized premium in order to purchase health insurance. According to U.S. Census data, approximately 391,000 Rhode Islanders (including dependents) have a household income of greater than 400% of the federal poverty level,[xxxvi] about $44,680 for an individual or $92,200 for a family of four.[xxxvii]
The rate of uninsured among this higher-income segment of the population is significantly better than for the rest of the population — approximately 5%, nationally.[xxxviii] This figure is generally consistent with Rhode Island’s past findings on the income levels of the uninsured, which found that 12.8% of the uninsured had incomes above 400% of the poverty level,[xxxix] and suggests about 19,500 uninsured Rhode Islanders have relatively high incomes.
Not all of these will be exempt from the mandate, particularly at younger ages. But assuming “Bronze” level premiums of $4,636 for a 55 year old,[xl] individuals between approximately $46,000 and $55,500 (400 and 483% of the poverty level) will be exempt from the mandate because their premiums would exceed 8% of income and be considered “unaffordable.”
The exempt range for couples and individuals is even greater by age and income. A couple aged 54 would be exempt if their combined income were between $62,000 and $111,000, while a family of four with 44-year old parents and incomes between $92,200 and $105,600 would be exempt from the mandate to purchase insurance.[xli], [xlii]
The effects of this exemption is likely to be concentrated among the older uninsured because they face higher premiums and are more likely to earn higher incomes. Because of this broad exemption, it is likely that very few of Rhode Island’s estimated 19,500 high-income uninsured will purchase insurance, and many more currently insured may in fact drop coverage knowing they can obtain it at a later date if faced with significant health care expenses.
There is little dispute over the fact that the ACA does not meaningfully address the high number of uninsured among the community of undocumented immigrants. Various provisions of the law, as well as current Medicaid law, specifically prohibit most undocumented immigrants from obtaining any health benefits, such as by enrolling in Medicaid,[xliii] receiving tax credits through the exchange to lower out-of-pocket premium costs, or even purchasing unsubsidized insurance through the exchange.
While the exact number of undocumented immigrants in Rhode Island is not known, most estimates put the number at around 30,000.[xliv] Nationally undocumented immigrants have been estimated to have an uninsured rate of 57%,[xlv] while the combined population of legal noncitizens and undocumented immigrants have an estimated rate of 45%.[xlvi] Noncitizens (both legal and undocumented) are estimated nationally to comprise approximately 22% of the uninsured.[xlvii]
All told, these estimates suggest that at least 17,000 Rhode Island residents, and possibly more, are currently uninsured and will remain so after full implementation of the ACA in 2016.
Another group that must also be considered includes those who are currently insured, but who may actually lose their coverage as a result of certain provisions embedded in the ACA.
Under ACA, employers with fewer than 50 full-time employees are exempt from the requirement to make health insurance available to their workers. For businesses with 50 workers or more, there is a $2,000-per-employee penalty for not providing insurance to workers. For most Rhode Island businesses with 50 or more employees, the requirement would not impose a new burden, as these firms already provide insurance to full-time and even some part-time workers.[xlviii]
However, in the face of continued rising health care costs and a relatively modest penalty (compared to health insurance premiums) of $2,000 per employee combined with generous subsidies through the exchange for low- and middle-income workers, it is likely that some employers will choose to stop offering health insurance, pay the penalty, and increase employee compensation directly to offset the loss of health benefits. Some estimates predict modest increases in employer-sponsored insurance coverage,[xlix] but most conclude that there will be a net decrease in the number of Americans receiving health insurance from their employer for these and other reasons.[l], [li]
One industry in which there may be pressure to eliminate or reduce eligibility for employer sponsored health insurance is the restaurant industry, especially if premiums continue to rise as expected even after full implementation of the ACA. Several national restaurant chains or their franchisees have announced in response to the employer mandate that they are likely to limit employees to part-time status in order to avoid the penalty, and others will likely follow.[lii] The restaurant industry has expressed considerable concern about implementation of ACA on behalf of both small and large employers in the industry.[liii]
Restaurants typically operate with a relatively slender 4–6% profit margin,[liv] and according to the National Restaurant Association between 54% and 79% of restaurant workers are uninsured.[lv] Because of such slim margins, considerable flexibility in being able to keep employees at part-time status, and the fact that most restaurant workers are relatively low-income and young, it is highly likely that few restaurant owners will add health benefits, and many that currently offer insurance will consider dropping coverage.
The retail industry faces a similar situation to restaurants. There are more than 87,000 Rhode Islanders in the restaurant and retail industries,[lvi] many of whom are currently uninsured and unlikely to gain employer coverage under ACA and some of whom are currently insured and at risk of losing their employer coverage. The average estimate for three major studies of the number of Americans likely to lose employer coverage is 3.3 million,[lvii] while the most recent Congressional Budget Office estimate pegs the number of persons losing employer-provided coverage at 7 million.[lviii] Using this range, between 11,000 and 24,000 Rhode Islanders will likely lose the employer coverage they currently have.[lix] Many are likely to obtain coverage through the exchange, but others are likely to “game” the system, delaying purchasing insurance until they fall ill or are injured, or as members of the “young invincibles” decide to take any extra compensation they receive upon the loss of employer-sponsored insurance and spend it on things other than health insurance.
It is difficult to predict with any certainty how many Rhode Islanders will remain uninsured after full implementation of the Affordable Care Act in 2016. It should be pointed out that there is substantial overlap among several of the groups described above: Some “young invincibles” are likely also undocumented aliens, and some of the self-employed are also likely exempt from the mandate to purchase insurance because their incomes fall in the range at which unsubsidized premiums exceed 8% of income.
An additional factor that prevents any firm estimate of the number of uninsured is that it is impossible to know how many Rhode Islanders will respond to the considerable disincentives embedded in the ACA to immediately purchase health insurance until an illness or injury makes it economically rational to obtain coverage, as well as provisions of the law that substantially increase premiums for younger policyholders.[lx]
Even with these limitations, a broad range of those likely to remain uninsured after full implementation can be estimated. Based on the information described in this report, and using relatively conservative estimates, between 70,500 and 97,000 Rhode Island residents are likely to remain uninsured after full implementation of ACA in 2016,[lxi] which would reduce the uninsured rate to between 7.9 and 10.5%, from the current 13.4%. The bulk of newly insured in Rhode Island are likely to be new participants in the RIte Care program, with relatively modest numbers of previously uninsured gaining coverage through the individual exchange.
Other Papers in This Series
The first paper in this series, published in June, was “Will Rhode Islanders Purchase Insurance Under ObamaCare?” That paper calculated the tax penalty and likely premiums for various age and income groups and concluded that many would have financial incentive not to purchase health insurance.
The Rhode Island Center for Freedom & Prosperity will continue to contribute to this important and highly personal public discussion by publishing one more related paper proposing free-market public policy solutions, as well as private strategies, that can be pursued to address this shortcoming, without requiring any additional taxpayer funding.
For more information, please contact our Center or visit us at www.RIFreedom.org or email email@example.com.
About the Author
Sean Parnell, an adjunct scholar to the RI Center for Freedom & Prosperity, is president of Impact Policy Management (IPM), a Washington, D.C., area full-service public policy firm, and manages political advocacy projects for free market and limited government causes. Before founding IPM he was president of the Center for Competitive Politics (CCP), a nonprofit advocacy organization focused on defending the First Amendment. Prior to joining IPM Parnell was Vice President of External Affairs at the Heartland Institute.[button url=”http://www.rifreedom.org/wp-content/uploads/RICFP-PPACA-leftbehind-080513.pdf” target=”_self” size=”small” style=”royalblue” ]Download PDF[/button]
[i] Comments by Christine Ferguson, Director, RI Department of Human Services, “Hindsight and Foresight: Lessons for Getting It RIte,” May 18, 2001 Conference Transcript: “Getting It RIte (Rhode Island)” page 62, available at: http://www.ihps.org/pubs/2001MayConf/RI.pdf
[ii] “Rhode Island’s RIte Share Premium Assistance Program: ESTIMATED SAVINGS, State Fiscal Year 2005” p. 2,
RI Department of Human Services, January 2006, available at: http://www.dhs.ri.gov/Portals/0/Uploads/Documents/Public/RCRS/RS_Savings_Report_06.pdf
[iii] Web site of the Office of the Health Insurance Commissioner, available at: http://www.ohic.ri.gov/AboutUs_Mission.php
[iv] Edward Alan Miller, et. al. “ Rhode Island’s HEALTHpact Plan: Lessons for Small-Group Reform,” p. 1, Robert Woods Johnson Foundation, March 2010. Available at: http://www.rwjf.org/content/dam/web-assets/2010/03/rhode-island-s-healthpact-plan
[v] Jane Griffin, MPH, ‘Profiles and Trends of the Uninsured in Rhode Island – 2005 Update,’ p. 3, Table 1,
RI Medicaid Research and Evaluation Project, October 2006. Available at: http://www.dhs.ri.gov/Portals/0/Uploads/ Documents/Public/Profiles%20and%20trends.pdf; see also Colleen Ryan, MPH, et. al., “Achieving Universal Health Care Coverage in Rhode Island: Where Are the Challenges?” Figure 1, Rhode Island Department of Public Health, March 2002, available at: http://www.health.ri.gov/publications/periodicals/healthbynumbers/0203.pdf
[vi] Based on 18–64 population estimate provided by U.S. Census Bureau, available at: http://www.planning.ri.gov/census/2010/demographic.pdf
[vii] Matthew Buettgens, Mark A. Hall, Who Will Be Uninsured After Health Insurance Reform, p. 8, Table 1, Robert Wood Johnson Foundation, March 2011. Available at: http://www.rwjf.org/content/rwjf/en/research-publications/find-rwjf-research/2011/03/who-will-be-uninsured-after-health-insurance-reform-.html
[viii] See Sara Rosenbaum, ‘The Patient Protection and Affordable Care Act: Implications for Public Health Policy and Practice,’ Public Health Reports, Jan-Feb 2011, “the Act establishes… a near-universal guarantee of access to affordable health insurance coverage,” available at: http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3001814/; see also ‘Health Reform and You: How the Affordable Care Act Expands Health Insurance Coverage,’ Commonwealth Fund, January 9 2013, “the Affordable Care Act will deliver near-universal health coverage to Americans,” available at: http://www.commonwealthfund.org/ Multimedia/Videos/2013/How-the-ACA-Expands-Health-Insurance-Coverage.aspx; see also “America’s Future,” The Lancet, Volume 380, Issue 9853, Page 1531, 3 November 2012, “Obama will continue to implement the landmark Patient Protection and Affordable Care Act (ACA), passed in 2010, which aims for near-universal health-care coverage,” available at: http://www.lancet.com/journals/lancet/article/PIIS0140-6736%2812%2961861-3/fulltext; see also testimony of Christine Ferguson, Director, Rhode Island Health Benefits Exchange, to the U.S. Senate Committee on Finance, February 14, 2013, “We are carrying out our work under five guiding goals. In Rhode Island, we will… Achieve near universal coverage,” available at http://www.finance.senate.gov/imo/media/doc/Director%20Christine%20Ferguson%20Testimony%20-%20U%20S%20%20Senate%20Finance%20-%202%2014%20131.pdf. In addition, Governor Lincoln Chafee’s executive order authorizing the creation of an exchange described the purpose of the act as “Providing near-universal health insurance coverage.” See following note.
[ix] Executive order 11-09 of Governor Lincoln Chafee, ‘Establishment of the Rhode Island Health Benefits Exchange,’ September 19, 2010, available at: http://www.governor.ri.gov/documents/executiveorders/2011/Executive_Order_11-09.pdf
[x] “A Guide to the Supreme Court’s Affordable Care Act Decision,” p. 5, Kaiser Family Foundation, July 2012, available at: http://www.kff.org/healthreform/upload/8332.pdf
[xi] The author considers 2016 to be the first year of “full implementation” for ACA because it is the first year the penalty tax for not obtaining health insurance is at its full level. The penalty tax is considered to be the key to getting many of the uninsured to purchase coverage.
[xii] Estimates for the Insurance Coverage Provisions of the Affordable Care Act Updated for the Recent Supreme Court Decision, p. 20, Table 3, Congressional Budget Office, July 2012. Available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/43472-07-24-2012-CoverageEstimates.pdf
[xiv] Matthew Buettgens, Mark A. Hall, Who Will Be Uninsured After Health Insurance Reform, p. 8, Table 1, Robert Wood Johnson Foundation, March 2011. Available at: http://www.rwjf.org/content/rwjf/en/research-publications/find-rwjf-research/2011/03/who-will-be-uninsured-after-health-insurance-reform-.html
[xvi] For a full account, see: Destroying Insurance Markets by Conrad Meier, published by the Council for Affordable Health Insurance and The Heartland Institute, 2005. Full text available at: http://www.cahi.org/cahi_contents/resources/pdf/destroyinginsmrkts05.pdf
[xvii] See Appendix B for an analysis of true out-of-pocket costs v. penalty
[xviii] ‘Technical Explanation of the Revenue Provisions of the “Reconciliation Act of 2010,” As Amended, In Combination With The Patient Protection and Affordable Care Act,’ p. 2 (errata correction), Joint Committee on Taxation, March 21, 2010, which reads: “Although assessable and collectible under the Code, the IRS authority to use certain collection methods is limited. Specifically, the filing of notices of liens and levies otherwise authorized for collection of taxes does not apply to the collection of this penalty. In addition, the statute waives criminal penalties for non-compliance with the requirement to maintain minimum essential coverage. However, the authority to offset refunds or credits is not limited by this provision.” Available at: https://www.jct.gov/publications.html?func=startdown&id=3673
[xix] Calculated using the UC Berkley Labor Center calculator, available at: http://laborcenter.berkeley.edu/healthpolicy/calculator/
[xx] Karen Bogen, Who Are The Uninsured in Rhode Island: Demographic Trends 1990 – 2004, Access to Care, and Health Status for the Under 65 Population, p. 50, Rhode Island Department of Human Services, 2006. According to Bogen, 44% of the uninsured in 2004 were between the ages of 18 – 34. Most young uninsured report themselves as being in “excellent,” “very good” or “good” health, see Ibid at note 8, p. 78, where only 6% of uninsured between age 18 – 39 reported their health status as only “fair” or “poor.” Previous work by Bogen (Who are the Uninsured in Rhode Island, p. 85, Rhode Island Department of Human Services, 2005) find that 57% of Rhode Island’s uninsured consider themselves in “excellent” or “very good” health, significantly below the 72.6% of insured. She notes however that “The uninsured’s self-perception of poorer health may not be based on actual illness prevalence. There are very small differences between the insured and uninsured on reports of asthma, arthritis, disability, depression, and diabetes.” p. 85.
[xxi] The low-end estimate of 31,000 relies on Bogen’s estimates (Ibid at note 23) that 44% of Rhode Island’s 124,000 uninsured are between the ages of 18 and 34, and that 57% of those consider themselves in “excellent” or “very good” health (124,000×0.44x.57). The high-end estimate of 63,500 assumes that Rhode Island’s currently uninsured population closely resembles the more recent national profile of the uninsured and relies on current Census Bureau data (available at: http://www.dlt.ri.gov/lmi/pdf/acs/rhodeisland.pdf) and Centers for Disease Control analysis (available at: http://www.cdc.gov/nchs/data/health_policy/HI_08_to_June11_YoungAdults.pdf), along with Pfizer’s report on the health status of the uninsured (see Ibid at note 19, p. 78). Based on these data the high-end number of uninsured between 18 and 35 in Rhode Island was determined as: (113,562×0.273)+(129,313×0.283)=67,600, which was then multiplied by 0.94 to remove those reporting their health status as “fair” or “poor.” Numbers have been rounded, and adjustments to source data have been made to reflect different reporting ranges in each report.
[xxii] Ibid at note 21.
[xxiii] See Ibid at note 24.
[xxiv] Patient Protection and Affordable Care Act; Health Insurance Market Rules; Rate Review; Proposed Rule, § 147.104 Guaranteed availability of coverage, p. 70612, Federal Register, Vol. 77, Number 227, November 26, 2012. Available at: http://www.regulations.gov/#!documentDetail;D=CMS-2012-0141-0001
[xxv] See Ibid at note 25, p. 57.
[xxvi] An Analysis of Rhode Island’s Uninsured: Trends, Demographics, and Regional and National Comparisons, Appendix, Office of the Health Insurance Commissioner, State of Rhode Island, September 2007. The appendix pages and tables in the appendix are not numbered, table titled “Uninsured < 65 by Labor Force Status” shows data from both the Rhode Island Health Interview Survey and U.S. Census Bureau Current Population Survey suggesting that 43% of self-employed uninsured are parents, meaning at least one dependent.
[xxvii] Rhode Island Indicators: Aging and Work, p. 8, Center on Aging and Work, Boston College, 2008. Available at: http://www.bc.edu/content/dam/files/research_sites/agingandwork/pdf/publications/states/RhodeIsland.pdf
[xxviii] Rhode Island: Health Insurance Coverage of the Nonelderly (0-64) with Incomes up to 139% Federal Poverty Level, available at: http://www.statehealthfacts.org/profileind.jsp?ind=849&cat=3&rgn=41 Although the law generally specifies expansion up to 133% of FPL, a 5% credit in the law effectively raises eligibility to all with less than 139% of FPL.
[xxix] Web site of the Rhode Island Department of Human Services, at: http://www.dhs.ri.gov/People/FamilieswithChildren/HealthCareCoverage/RIteCare/tabid/213/Default.aspx
[xxx] Genevieve M. Kenney, Lisa Dubay, Stephen Zuckerman, and Michael Huntress, Opting Out of the Medicaid Expansion under the ACA: How Many Uninsured Adults Would not Be Eligible for Medicaid? p. 3, Urban Institute, July 5, 2012. Available at: http://www.urban.org/UploadedPDF/412607-Opting-Out-of-the-Medicaid-Expansion-Under-the-ACA.pdf
[xxxi] “Medicaid Facts: Rhode Island” American Academy of Pediatricians, September 2012, available at: http://www.aap.org/en-us/advocacy-and-policy/federal-advocacy/access-to-care/Medicaid%20Fact%20Sheets/RhodeIsland.pdf
[xxxii] See ibid at note 35.
[xxxiii] Because Rhode Island currently extends Medicaid and CHIP eligibility for children up to 250% of FPL, there is no increase in the number of children eligible under ACA.
[xxxiv] John Holahan and Irene Headen, Medicaid Coverage and Spending in Health Reform: National and State?by?State Results for Adults at or Below 133% FPL, p. 36, Kaiser Family Foundation, May 2010. Available at: http://www.kff.org/healthreform/upload/medicaid-coverage-and-spending-in-health-reform-national-and-state-by-state-results-for-adults-at-or-below-133-fpl.pdf. See also Heidi Allen et. al. What The Oregon Health Study Can Tell Us About Expanding Medicaid, August 2010, available at http://www.ncbi.nlm.nih.gov/pmc/articles/PMC3533495/, suggesting a 2008 expansion in Oregon’s Medicaid eligibility resulted in a take-up rate of between 39 and 50%.
[xxxv] Carol A. Pettit and Edward C. Liu, The PPACA Penalty Provision and the Internal Revenue Service, p. 3, Congressional Research Service, April 30, 2010.
[xxxvii] 2012 HHS Poverty Guidelines, U.S. Department of Health & Human Services, available at: http://aspe.hhs.gov/poverty/12poverty.shtml/12fedreg.shtml
[xxxviii] The Uninsured – A Primer: Key Facts About Americans Without Health Insurance, p. 3, figure 2, Kaiser Family Foundation, October 2011. Available at: http://www.kff.org/uninsured/upload/7451-07.pdf
[xxxix] See Ibid at note 25, p. 55.
[xl] See Appendix A for proposed premiums for Blue Cross & Blue Shield of Rhode Island, effective January 1, 2014.
[xlii] The Kaiser Family Foundation performed similar calculations based on national data and CBO estimated “Bronze” level premiums and determined that a family of four with income between $98,000 and $150,000 would be exempt from the mandate. See “The Individual Mandate: How Sweeping?” March 21, 2012, available at: http://policyinsights.kff.org/ 2012/march/the-individual-mandate-how-sweeping.aspx. Similarly, the Office of the Actuary at the Centers for Medicare & Medicaid Services estimated that individuals and families with incomes between 400% and 542%, about 16% of the population, would be exempt from the mandate to purchase insurance because of the affordability standard; see: Richard Foster, “Estimated Financial Effects of the ‘Patient Protection & Affordable Care Act,’ As Amended,” p. 7, Department of Health & Human Services, April 22, 2010.
[xliii] Medicaid does allow for pregnant undocumented immigrants to receive care, including childbirth. Aside from this provision, however, they are effectively barred from receiving any benefits under ACA.
[xliv] Unauthorized Immigrant Population: National and State Trends, 2010, p. 23, Table A3, Pew Hispanic Center, 2011. Available at: http://www.pewhispanic.org/files/reports/133.pdf
[xlv] Stephen Zuckerman, Timothy A. Waidmann and Emily Lawton, Undocumented Immigrants, Left Out of Health Reform, Likely to Continue to Grow as Share of the Uninsured, p. 2000, Exhibit 2, Health Affairs, 30, No. 10 (2011).
[xlvi] Margaret McDonald and Robin P. Hertz, A Profile of Uninsured Persons in the United States, p. 12, published by Pfizer, Inc., 2008.
[xlvii] Ibid at p. 11.
[xlviii] State-Level Trends in Employer-Sponsored Health Insurance: A State-By-State Analysis, p. 24, Table 10, “Trend in Private Sector Employers Offering ESI, by Firm Size and State,” Robert Wood Johnson Foundation/State Health Access Data Assistance Center (SHADAC), June 2011. The study found that 98.3% of RI firms with 50 or more employees offer health insurance, compared to only 51.5% of firms with fewer than 50 employees. Of firms that offer insurance, the percentage of eligible workers was roughly equal in Rhode Island, at 75.6% for small firms and 76.4% for larger firms (p. 26, table 12).
[xlix] According to a Congressional Budget Office review of studies, microsimulations from the Centers for Medicare & Medicaid Services, RAND Corporation, and Urban Institute showed increases in net employer sponsored insurance of 200,000, 4.2 million, and 4.1 million, respectively. Another analysis by the Employment Policies Institute projected a 4 million net increase in employees receiving insurance through employers. See Patient Protection and Affordable Care Act: Estimates of the Effect on the Prevalence of Employer-Sponsored Health Coverage, pp. 10–12, Congressional Budget Office, July 2012.
[l] Ibid, pp.10–14. Booz & Company projects 3–4 million Americans will lose employer health coverage, the Congressional Budget Office initially predicted a net decrease of 4 million persons, and the Lewin Group estimates 2 million people will lose employer-sponsored coverage. In February 2013, the Congressional Budget Office increased its estimate of the number of persons losing employer-sponsored insurance to 7 million, see note 56.
[li] See, McKinsey & Company – Benefits Package Decision Makers Study, p. 162, February 2011 available at: http://www.mckinsey.com/features/us_employer_healthcare_survey, which found that 26.4% of employers with 50 or more employees would “definitely” or “probably” drop coverage in response to the ACA; see also Douglas Holtz-Eakin and Cameron Smith, “Labor Markets and Health Care Reform: New Results,” p. 5, American Action Forum, May 27, 2010, available at: http://americanactionforum.org/files/LaborMktsHCRAAF5-27-10.pdf, which finds that up to 35 million Americans are at risk of losing employer-sponsored coverage under ACA; see also “HR Policy Association: 2011 Annual Chief Human Resource Officer Survey,” available at http://www.hrpolicy.org/downloads/2011/CHRO%20Report%20Draft_FINAL%20REORDERED_HC%20Only.pdf, in which 6% of HR department heads said their companies would “give serious consideration to discontinuing providing health care benefits.”
[lii] See Jessica Lipscomb, “John Schnatter Papa John’s CEO: Obamacare likely to raise costs, employee’s hours being cut,” NaplesNews.com, November 8, 2012, available at: http://www.wptv.com/dpp/news/state/john-schnatter-papa-johns-ceo-obamacare-likely-to-raise-costs-employees-hours-being-cut; see also “Applebee’s targeted after franchisee mulls hiring freeze in response to Obamacare,” Twitchy.com, November 9, 2012, available at: http://twitchy.com/2012/11/09/applebees-targeted-after-franchisee-mulls-hiring-freeze-in-response-to-obamacare/; see also Julie Jargon, “Chili’s Feels Heat to Pare Costs” Wall Street Journal, January 28, 2011, available at: http://online.wsj.com/article/SB10001424052748704307404576080340742759346.html#articleTabs%3Dcomments
[liii] “Regulatory comments of the National Restaurant Association,” p. 2, October 31 2011, available at http://www.restaurant.org/pdfs/advocacy/20111031_hcr_irs_hhs_nra_sra_comments.pdf
[liv] Ibid. See also “A Better Approach to Government Business Mandates,” p. 4, The Profit-Per-Employee Coalition, October 2011, available at: http://profitperemployee.com/yahoo_site_admin/assets/docs/PPE_OVERVIEW_OCT_2011.264154218.pdf, which found that the restaurant and hospitality association had average profits per employee of only $754 annually, well below the all-industry average of $10,252.
[lv] Information contained in news release from National Restaurant Association, May 21, 2010, available at: http://www.restaurant.org/pressroom/pressrelease/?id=1959
[lvi] U.S. Bureau of Labor Statistics, available at: http://www.bls.gov/oes/current/oes_77200.htm#35-0000. The numbers show nearly 53,000 employees in the restaurant industry and approximately 34,000 cashiers and retail sales workers.
[lvii] Ibid at note 49, pp. 10–12. The Congressional Budget Office originally estimated 4 million Americans would lose coverage, the Lewin Group estimated 2.4 million, and Booz & Company estimated 3–4 million. While other studies reviewed in this paper estimate increases in employer provided insurance (RAND, Urban Institute, Centers for Medicare & Medicaid Services), the author believes these studies do not account for the significant incentives that employers, particularly in low-wage industries with considerable scheduling flexibility such as restaurants and retail outlets, will face once ACA is implemented. In particular, the exemption of employers with fewer than 50 employees, the complex, temporary, and relatively modest subsidies available to small employers, and the fact that the penalty for not providing insurance is in many cases less than the cost of providing insurance, all combine to reduce the likelihood of employers’ being willing to offer coverage that was previously not provided, and increase the likelihood that employers will drop coverage. This view is also supported by the results of several surveys of employers (see Ibid at note 49), and numerous anecdotal accounts in the media of employers considering reducing or dropping the availability of health insurance for employees (see Ibid at note 50).
[lviii] The Budget and Economic Outlook: Fiscal Years 2013 to 2023, p. 60, Table A-2, Congressional Budget Office, February 2013, available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/43907-BudgetOutlook.pdf
[lix] Author’s calculation, based on Rhode Island’s population comprising 0.341% of the U.S. population. Source: http://quickfacts.census.gov/qfd/states/44000.html. Numbers have been rounded to the nearest 1,000.
[lx] See Alex Nussbaum “Aetna CEO Sees Obama Health Law Doubling Some Premiums,” Bloomberg, Dec 13, 2012, available at http://www.bloomberg.com/news/2012-12-12/aetna-ceo-sees-obama-health-law-doubling-some-premiums.html; see also Jonathan Block, ‘Young Americans Could Experience Shock When Exchanges Go Live,’ AISHealth.com, December 7, 2012, available at: http://aishealth.com/blog/health-reform/young-americans-could-experience-shock-when-exchanges-go-live; see also Miles Miller, ‘Obamacare architect: Expect steep increase in health care premiums,’ Daily Caller, February 11, 2012, available at
[lxi] These are conservative estimates based on adding the total number of ‘Undocumented Immigrants’ persons to .5 of both the high and low estimates for the “Young Invincibles,” “Self Employed,” “Exempt – Medicaid,” “Exempt – 400%+ FPL” and taking the low end of the “At Risk” estimate.
June 10, 2013
Download: PDF version of this report
Read the Part-3 report, Moving Forward with Healthcare in RI
There will be a broad financial disincentive in Rhode Island for a significant number of individuals and families to obtain private health insurance coverage under the President’s Affordable Care Act. As a result, Rhode Island should be prepared to see enrollment through the Rhode Island Health Benefits Exchange that is significantly below current expectations.
Based on proposed insurance rates in the Ocean State, and given the individual mandate penalties specified in the national law, for most income and age categories earning more than 200% of the federal poverty level for individuals, and 250% for families and couples, there are often substantial pocket-book reasons not to purchase insurance, even when subsidized via the state’s pending health benefits exchange.
This perverse economic incentive runs contrary to the stated goal of Obamacare to significantly decrease the number of uninsured Americans and will likely leave tens of thousands of Ocean State residents without adequate insurance coverage. This financial disincentive could also lead some people actually to drop insurance altogether, resulting in an increased number of uninsured as well as a rise in uncompensated hospital and emergency room costs.
On October 1, 2013, Rhode Island’s health benefits exchange will open to the public, allowing residents to purchase health insurance that becomes effective January 1, 2014. The purpose of the exchanges, and the federal Patient Protection and Affordable Care Act (PPACA) that created them, is to expand health insurance coverage and substantially decrease the number of uninsured.
For many Rhode Islanders the premiums for insurance will be capped under PPACA and the federal government will pay the premiums in excess of the capped amount. Subsidized coverage will be available to those between 100 and 400% of the federal poverty level (FPL) who do not have access to “affordable” coverage through work.
The subsidies are supposed to work in tandem with the so-called “individual mandate,” which requires most citizens to obtain health insurance or pay a tax as a penalty. By offering subsides to low- and moderate-income individuals and families while imposing a penalty for failure to buy insurance, PPACA is essentially trying a “carrot and stick” strategy to expanding coverage.
Key to the success of this strategy will be how individuals and families perceive the pocketbook tradeoffs between obtaining coverage or paying a tax. The question boils down to: Will the stick be large enough and swung hard enough to get most people to buy the carrot? This healthcare brief attempts to provide insights into the economic incentives that may serve as the basis for the answer to that question.
The following table depicts the financial tradeoff between the expected after-subsidy out-of-pocket cost of obtaining insurance through the exchange and the cost of not purchasing insurance and instead paying the tax. Positive numbers (in green bold) indicate that, from a strictly financial perspective, individuals and families can save money by paying the tax penalty rather than purchasing insurance. Negative numbers (in blue italics) indicate that it would be less expensive to purchase insurance than pay the tax.
Proposed insurance rates in RI will generally increase by 18% over last year, with younger individuals seeing increases of up to 50% in their premiums while older persons see lower premiums as a result of the implementation of the Affordable Care Act’s requirements and the operation of the exchange.
As the table demonstrates, at most income levels and ages the financial incentive is to avoid purchasing insurance and to instead pay the penalty. This suggests that the Rhode Island Health Benefits Exchange may have substantial difficulty in attracting a significant number of customers.
That said, the age groups and income levels for which the incentive is to purchase insurance (or at least the disincentive is not large), the young and those with low incomes, are the populations most likely to be uninsured. Many of these are likely to be eligible for Medicaid, however, reducing the number that might decide to purchase insurance through the Exchange.
Additionally, the table only looks at the financial incentives and does not consider two other factors that might lead an individual or family to purchase health insurance despite these incentives. In the first instance, Rhode Islanders who tend to be risk-averse and concerned about the possible need to pay for expensive and unexpected health care needs might overlook the pure financial incentives and obtain insurance. In the second instance, Rhode Islanders who already have substantial health needs such as diabetics, heart disease sufferers, or other chronically ill persons will generally find it to their financial advantage to buy insurance because the after-tax savings for not buying insurance are still less than their out-of-pocket costs for needed care.
Unfortunately, if individuals with greater health needs than average are more inclined to purchase insurance, it will lead to adverse selection in the health insurance market and set off a “death spiral” causing premiums for non-subsidized (and some subsidized) individuals to rise, leading even more individuals and families to drop coverage, until only those with extremely high medical bills are left paying extremely high premiums.
Another factor not included in the financial analysis is the impact that social expectations might have. It is possible that even though it may not be seen to make financial sense to purchase insurance through the exchange, the fact that there is a penalty for not doing so will lead some to decide that purchasing insurance is the responsible thing to do, and that not purchasing insurance is an act of poor citizenship.
On the negative side, the disincentive to purchase insurance may be even greater in many people’s view because of the nature of the insurance. The Blue Solutions for HSA Direct 5000 plan, which is the plan used here for most of the analysis, features a $5,000 deductible for an individual and $10,000 for a family.
The least expensive Silver plan, Blue Solutions for HSA 2600, features a $2,600 deductible for an individual and $5,200 for a family, and costs nearly 30 percent more than the Blue Solutions for HSA Direct 5000 policy.
This means individuals and families considering whether to purchase insurance or pay the tax will also be looking at the benefits they might get from being insured. In the case of a family of four with two adults age 34 earning $82,425 (350% of FPL), they would not only consider whether it’s worthwhile to spend about $3,000 more on insurance than they would pay in taxes for being uninsured but also recognize that they would still need to pay $10,000 out of their own pockets before getting benefits from their policy in the event of a catastrophic illness or injury.
Because very few individuals and families will see medical expenses approaching $13,000 (adding the $3,000 difference between the tax and out-of-pocket premiums to the $10,000 deductible), it is highly likely that many individuals and families will see little value in insurance that is expensive while still exposing them to substantial financial risk, and will choose to remain uninsured, paying for their relatively few medical expenses out-of-pocket and saving a substantial amount of money.
An additional factor to consider is the “moral hazard” created by requiring that insurers accept all applicants at standard rates, with no exclusions or limits on care for pre-existing medical conditions. This effectively tells Rhode Islanders weighing whether to buy costly insurance or pay a relatively modest tax if they choose to remain uninsured that they can delay purchasing insurance and still be able to obtain coverage at a later date to pay future medical expenses in the unlikely event of a catastrophic injury or illness.
This has the potential to further tip the decision towards remaining uninsured, although the limited open-enrollment period may mitigate this impact somewhat (the rate filings by Blue Cross/Blue Shield of Rhode Island indicates an annual open enrollment period between October 15 and December 7).
This “moral hazard” could also manifest itself if many of the currently insured in the individual market as well as some receiving insurance through their employer respond to the incentives embedded in PPACA and the exchange and elect to drop coverage.
Finally, the analysis here uses the tax amounts for 2016, and assumes the tax will be collectable by the IRS. In 2014, the tax for remaining uninsured will be the larger of $95 per person or 1% of taxable income, rising in 2015 to $395 or 2%, making the incentive to remain uninsured for at least these two years substantially more than the table above indicates.
There is also some doubt about the ability of the IRS to actually collect the tax, given that they are prohibited from pursuing civil or criminal charges for nonpayment, and are not able to garnish wages, seize assets, or levy additional penalties or interest for nonpayment. The only mechanism available to the IRS for collecting the tax for being uninsured is to take it out of tax refunds, which can be easily avoided by adjusting how much tax is withheld.
Methodology & Sources
The financial incentives to obtain health insurance coverage (subsidized or unsubsidized) or be uninsured and pay the tax depend on several factors: age and how much an individual or family earns as a percentage of the federal poverty level (FPL) in adjusted gross income; what the Bronze and Silver level premium for their age/family composition would be; what their premium subsidy would be; and what their tax for being uninsured would be. Once this information is known, it is fairly easy to calculate how much any particular individual or family would have to pay to obtain health insurance as well as what their tax would be for being uninsured.
Age levels for the purposes of this analysis were set at 24, 34, 44, 54, and 64 years old. Income levels for this analysis were selected to be 150, 200, 250, 300, 350, 400, 401, 600, and 800 percent of FPL, using 2013 poverty guidelines.
Bronze level premiums were assumed to be the lowest-cost Bronze plan submitted to the Rhode Island Office of Health Insurance Commissioner on April 15, 2013, in this case the Blue Solutions for HSA Direct 5000. The Silver premium cost used was VantageBlue Direct 3000. Premiums for a couple of the same age are calculated to be two times the individual premium, and the family premium assumes two adults of the same age and two children under age 21.
The premium subsidy was determined by subtracting the maximum out-of-pocket amount (as determined by PPACA’s guidelines) from the Silver premium. This amount was then subtracted from the Bronze level premium, with the remainder being what individuals, couples, and families are expected to pay for coverage through the exchange. In some cases, the result was negative, in which case “zero” was substituted for the subsidy.
The premium for the Catastrophic plan was used where it was less than the subsidized Bronze premium for those eligible to purchase it, defined in PPACA as those age 30 and under and those for whom out-of-pocket premium costs would exceed 8% of income.
The tax levied on being uninsured was calculated using the 2016 tax rate, the time at which penalties under PPACA for being uninsured will first be in full force. Income subject to the tax equals income minus the tax filing threshold ($9,750 for an individual in 2012, $19,500 for a married couple) multiplied by 0.025 in 2016, or $695 per uninsured adult and half that amount for each uninsured child, whichever is larger. Individuals and families for whom purchasing insurance would cost more than 8% of income are exempt from the tax if they elect not to purchase insurance.
Once this information was obtained and calculated, a simple analysis was performed subtracting the tax for being uninsured from the out-of-pocket premium. The difference represents the financial incentive or disincentive for purchasing insurance under PPACA.
While advocates of the Rhode Island Health Benefits Exchange are optimistic about its ability to substantially reduce the unacceptably high number of uninsured in the state (along with the Medicaid expansion), there is substantial reason to be concerned that it will not attract large numbers of individuals and families.
As demonstrated here, for many age and income levels, the clear financial incentive is to not buy insurance and instead pay (or possibly avoid altogether) the tax. In some instances this incentive is relatively weak, only several hundred dollars. But for many more the incentive is thousands of dollars in difference between buying insurance or remaining uninsured, and more than $10,000 for many who are older, have children, and are in higher income brackets.
This strongly suggests that public officials and community leaders in Rhode Island should be prepared to see enrollment through the Rhode Island Health Benefits Exchange that is significantly below current expectations, leaving a substantial number of Ocean State residents uninsured.
Future Related Papers
The Rhode Island Center for Freedom & Prosperity will continue to contribute to this important and highly personal public discussion by publishing two related papers in the coming months.
First, identifying and quantifying the groups of people who are likely to remain uninsured after the PPACA takes effect.
Second, to propose free-market public policy solutions, as well as private strategies, that can be pursued to address this shortcoming, without requiring any additional taxpayer funding.
About the Author
Sean Parnell, an adjunct scholar to the RI Center for Freedom & Prosperity, is president of Impact Policy Management (IPM), a Washington, D.C., area full-service public policy firm, and manages political advocacy projects for free market and limited government causes. Before founding IPM he was president of the Center for Competitive Politics (CCP), a nonprofit advocacy organization focused on defending the First Amendment. Prior to joining IPM Parnell was Vice President of External Affairs at the Heartland Institute.
 Technically the penalty for being uninsured cannot exceed the cost of the national average for a Bronze plan, meaning that in cases where the tax is greater than the Bronze premium (a negative number), the actual difference between the maximum out-of-pocket premium and the tax is close to zero. In order to demonstrate how close or far each income level is from this point, we have kept the originally calculated number. The table here presents only final findings, based on the data and calculations described in the Methodology and Sources section. The full spreadsheet including all data and formulas used is available to anyone who requests it, please contact firstname.lastname@example.org
 For a more complete discussion of the composition and characteristics of the uninsured in Rhode Island, see Karen Bogen’s Who Are The Uninsured in Rhode Island: Demographic Trends 1990 – 2004, Access to Care, and Health Status for the Under 65 Population prepared for the Rhode Island Department of Human Services in 2006, available at: http://www.dhs.ri.gov/Portals/0/Uploads/Documents/Public/Who%20are%20the%20uninsured.pdf
 For a full discussion of the ‘death spiral’ phenomenon, see: Destroying Insurance Markets by Conrad Meier, published by the Council for Affordable Health Insurance and The Heartland Institute, 2005. Full text available at: http://www.cahi.org/cahi_contents/resources/pdf/destroyinginsmrkts05.pdf.
 A review of data available from the results of the Medical Expenditure Panel Survey (MEPS) conducted by the Agency for Healthcare Research & Quality shows that in 2010 the median healthcare expense was $875 for persons age 18 – 44 and $2,124 for those age 45 – 64. Mean expenditure for these age groups were $3,230 and $6,429, respectively. MEPS has repeatedly found that medical expenditures are highly concentrated among a small percentage of the population, typically older and Medicare-enrolled. See reports available at: http://www.ahrq.gov/research/data/meps/index.html
 BCBSRI Individual Market Submission to Rhode Island Office of Health Insurance Commissioner, p. 93 4/15/2013, available at: http://www.ohic.ri.gov/documents/2013%20Rate%20Review%20Process/2013%20Rate%20Review%20Submissions/1_2013%20BCBSRI%20Individual%20Market%20Submission%2041513%20Final.pdf
 Health Reform Subsidy Calculator, Henry J. Kaiser Family Foundation, available at: http://healthreform.kff.org/subsidycalculator.aspx
 “Payments of Penalties for Being Uninsured Under the Affordable Care Act,” Congressional Budget Office, September 2012, available at: http://www.cbo.gov/sites/default/files/cbofiles/attachments/09-19-12-Indiv_Mandate_Penalty.pdf