It could have been worse.
In the first weeks after Obamacare's health insurance exchanges launched on October 1, 2013, almost nothing worked. The main federal exchange, which served as an insurance hub for 36 states, was down more often than it was up, and when it was online, it didn't work. Many exchanges run by state governments were in disarray as well. Millions of people with individual health insurance policies received letters indicating that their existing coverage would be canceled. The law's mandated small business exchange had been delayed, as had its Spanish language website. Thousands of applications were stranded inside the glitchy exchange systems. It seemed entirely plausible that between the cancellations and the website failures, Obamacare's expansion of insurance coverage-the main selling point of a $2 trillion overhaul of the health care system-might end up making no meaningful dent in the uninsured rate at all.
The rollout was bad enough that the Obama administration was gritting its teeth in full crisis-P.R. mode, assuring Americans that, despite a few bumps in the road, all was okay. "This system is not failing," embattled White House Press Secretary Jay Carney told CNN in October. "Hundreds of thousands of Americans are submitting their applications successfully to get into the system and enroll in Obamacare, and they are doing it through a variety of means, through state exchanges and through the call-in centers and that's going to continue."
Behind the scenes, however, the White House was terrified. Reporting would later come out that top officials were actively considering scrapping the health exchange system they had spent three years building, and starting over from scratch. More than a few Republicans in Congress confidently predicted that the law would soon collapse under its own weight. Obamacare looked doomed.
But in December, following a series of frantic all-hands-on-deck repair efforts by the administration's tech team, the federal exchange began to function normally. An end of year sign-up surge showed not only that the system could handle increased traffic volume, but that there might be real demand for the insurance being sold. Exchanges run by densely populated states such as California and New York were reporting brisk traffic and hundreds of thousands of sign-ups. In January, the administration fired the technology contractor that had built the federal exchange. Progress was being made.
At the end of March, Obamacare's first open enrollment period-the timeframe during which anyone is allowed to sign for coverage each year-came to a close, providing an opportunity to benchmark the controversial new system's performance. That final week brought a surge in people applying for coverage, taking the total number of sign-ups to just over 8 million-better than the 7 million enrollments that the Congressional Budget Office (CBO) had predicted when the law passed, and far better than the revised estimate of 6 million the CBO predicted after the website crashed. Relying on a daily tracking poll, Gallup reported that the nation's uninsurance rate had dropped to its lowest point since 2008.
The administration's spin quickly went from cautiously optimistic to cocky. "I think it is fair to say we surpassed everybody's expectations," Carney said in April.
Critics who wanted to overturn the law had been definitively proven wrong. "The point is the repeal debate is and should be over," President Obama said in a press conference a few days later. "The Affordable Care Act is working." White House senior adviser Dan Pfeiffer tweeted that the health care law was an "amazing comeback story."
The administration's belated claims of success rested heavily on two pillars: the 8 million sign-up figure and the exceedingly low expectations established by the exchanges' disastrous launch. The White House was selling an unlikely underdog story in which the plucky little health care law, backed only by the entire executive branch of the federal government, came from behind to score an unexpected victory.
But judged by other metrics, such as rising health spending, state-by-state sign-ups, demographic balance, and public opinion, the law looks less like a success story and more like an enormous national experiment still struggling out of the gate. Yes, it could have been worse. But it also could have been a lot better. And beyond the headline successes, more than a few potential problems remain.
Sign-ups vs. Enrollments
The administration's single most prominent piece of evidence that Obamacare is a success is that it surpassed expectations by signing up 8 million people for coverage. That statistic, however, leaves out an important detail: how many of those 8 million have actually enrolled.
For now, what the administration knows for sure is that 8 million people "selected a plan"-they successfully logged on to a website, looked at the insurance choices that were available to them, and clicked a box indicating which plan they'd like to buy. What's less clear is how many of those people followed up by paying their first month's premium, a requirement for coverage.
When pressed, federal officials have responded that only insurers have complete information about payment rates. For their part, insurers say they don't know with absolute precision, either. But it's possible to arrive at a rough estimate.
At the end of April, Karen Ignagni, the CEO of the health insurance trade group America's Health Insurance Plans, told a Politico briefing that about 85 percent of sign-ups had paid. In testimony before Congress in May 2014, several insurance company executives put their payment rates at between 80 and 90 percent. Officials in California, which has more sign-ups than any other state and is widely regarded as producing the most successful implementation of Obamacare, have also estimated an 85 percent payment rate.
Prior to the launch of the exchanges, the administration had targeted 7 million enrollments by the end of open enrollment. In June 2013, Health and Human Services (HHS) Secretary Kathleen Sebelius told reporters, "We're hopeful that 7 million is a realistic target." A September 2013 memo from the Centers for Medicare and Medicaid Services projected 7.066 million enrollments by the end of March. Right before the exchanges opened for business, Sebelius told NBC that "success looks like at least 7 million people having signed up by the end of March 2014."
If 85 percent of the 8 million sign-ups end up paying, then the true exchange-enrollment total is more like 6.8 million. Even a 10 percent reduction would still knock 800,000 off the administration's sign-up total-far better than prospects looked in the law's darkest days, but still substantially less than the headline figure the administration advertised.
Getting the Right Demographic Mix
It's not enough to have millions of people signed up for insurance though. It matters what kind of people sign up.
Because the Affordable Care Act restricts how insurers can price based on age and health history, the law needs a substantial portion of younger, healthier people to sign up for coverage in order to balance out the higher costs of insuring older and sicker people.
Even the Obama administration has suggested that getting the right demographic mix is more important than getting lots of people into the exchanges. "Whatever the total figure is of people who enroll by March 31st, the aggregate number," Carney said in January, "the total number is not as important as the overall makeup that you see in that population."
That's why you saw so many ads over the winter targeting young people (see "Selling Obamacare," page 32): If the Obamacare exchanges were filled disproportionately with people who were old and sick, then premiums would rise, and fewer people would purchase insurance, which could cause premiums to rise again, potentially resulting in a meltdown of the insurance pool.
In background briefings with various reporters in the summer of 2013, the White House said that the goal, based on estimates by the CBO, was to have 39 percent of all enrollees to be between the ages of 18 and 35. So what was the final total? Just 28 percent of sign-ups were in that age range.
The exchange enrollees are not just older; they're probably sicker, too. An April study by pharmacy benefits manager Express Scripts found that use of expensive specialty drugs by early exchange enrollees is 47 percent higher than is typical for those enrolled in employer health insurance, usually a sign of a less healthy population.
State-by-State Enrollment Targets
Even under a federal law like Obamacare that features a main federal exchange, insurance markets are still regulated and separated by state lines. So the experience of the Affordable Care Act will differ dramatically by region, with some states seeing robust enrollment figures and healthy risk pools, and others struggling to make do despite low enrollment.
By the middle of April, 22 states had met or exceeded their initial enrollment targets, according to a May analysis by the health policy consulting group Avalere Health (which assumed an 85 percent payment rate among sign-ups). A few of those states far exceeded their aims, including California and Florida, which enrolled 186 percent and 199 percent of their goals, respectively.
That left slightly more than half the states below their stated targets. Some of the stragglers, such as Indiana, Arizona, Illinois, and Kansas, came in reasonably close, hitting at least 85 percent of their goals. But a handful of states missed the mark by wide margins. Wisconsin enrolled just 57 percent of its goal, and West Virginia just 61 percent. New York and Hawaii both enrolled fewer than half their target numbers.
Some of the states with low enrollment can expect to face serious problems maintaining viable, affordable insurance markets under Obamacare. West Virginia in particular has been pegged as likely to see big premium hikes, for its combination of low enrollment, sicker than expected population, and weak insurer competition. "West Virginia sticks out as really worrisome," Avalere Health Vice President Caroline Pearson told National Journal in May. "Their exchange is not having great luck."
Complicating matters further is that several of the state-run exchanges continue to struggle with major technical malfunctions throughout open enrollment, and a few are essentially inoperable (see page 26).
Website Still Incomplete
At the center of Obamacare's botched launch last October was a broken federal exchange system, housed at Healthcare.gov, which covers insurance sign-ups in 36 states. For all practical purposes, the system did not work for two months. After an all-in effort to fix the mess, the administration deemed the site largely repaired. "We believe we have met the goal of having a system that will work smoothly for the vast majority of users," HHS stated in an early December report.
But the technical troubles were far from over. The administration's repair effort had focused on repairing the front end of the system-the part that could be seen and used by insurance shoppers-at the expense of everything else. The result was that the crucial components of the back end, the guts of the system designed to communicate critical data and manage the law's complex web of payments and subsidies, remained not broken but almost entirely unbuilt.
In November, Henry Chao, the top HHS tech official working on the exchanges, testified before Congress that 30-40 percent of the federal exchange, including payment processing capabilities, had still not been completed. At the time, he said that the administration expected to finish the job by January.
But when January arrived, the work was still not done. The administration fired its tech contractor, CGI Federal, and hired a new one, Accenture, relying on a no-bid contract that the administration indicated was necessary to speed up the typically slow federal contracting process.
"Failure to deliver" payment functionality "by mid-March 2014," the administration warned in a document justifying the contract, "will result in financial harm to the Government. If this functionality is not complete by March 2014, the Government could make erroneous payments to providers and insurers." Without a finished system, "the entire healthcare reform program is jeopardized." Missing the mid-March deadline would "significantly increase" a variety of risks for the program, and could "potentially [put] the entire health insurance industry at risk."
Yet March, too, came and went, and the back end remained incomplete. As late as May, the White House refused to provide any expected deadline for total functionality. An administration spec sheet said that insurers should prepare to rely on manually created workaround estimates at least through September.
Meanwhile, the related tech-headaches continued to mount. In May, The Washington Post reported that more than one million insurance sign-ups under the law had resulted in incorrect subsidy payments. Obamacare subsidies are based on income, but in many cases, the incomes submitted on the insurance applications did not match the incomes on file with the Internal Revenue Service. Normally, such a problem would be resolved through a follow-up check, in which individuals with discrepancies could submit paperwork. But the system to process that paperwork had not been completed, either.
So the verification process had to be completed by hand. Federal officials told the Post that they did not expect discrepancy-check functionality until summer, after other verification issues were sorted out.
Bailing Out Insurers?
Among the crucial payment systems left unbuilt as of mid-May was the mechanism for managing a program buried within the law known as risk corridors. This initially obscure provision became far more prominent when Republican critics started labeling it a built-in bailout for the insurance industry.
At its most basic, the risk corridors program is a process for sharing risk between the federal government and the health insurers participating in Obamacare. Each year, insurers set targets for health claims spending within their plans. If spending comes in at 97 percent or less of their expected costs, then they pay the savings into the federal government. If claims costs come in at 103 percent or more above target, then the federal government pays the insurer, covering a portion of the unanticipated costs.
In theory, some insurers pay in, others are paid out, and it all balances out, with no net cost to the feds. That's how the program was expected to work when the law was written, and federal health officials affirmed this year that they intend to run it revenue neutral. But what happens if most or all of the insurers spend more than expected, and the federal government ends up on the hook?
Such a scenario is not outside the realm of possibility. Multiple insurers have issued warning signals that the exchange business may not be financially stable yet. A January Securities and Exchange Commission (SEC) filing from Humana told investors that the exchange population was "more adverse"-sicker and more expensive-than expected. Cigna CEO David Cordani said in February that the company does not expect Obamacare to be "a money maker." Aetna CEO Mark Bertolini said flatly in February that the company expects "to lose money in the first year."
The ratings agency Moody's cut its health insurer outlook to negative in January as a result of "uncertainty over the demographics of those enrolling in individual products through the exchanges." And in perhaps the most telling sign of all, insurers have mounted an aggressive lobbying campaign defending the necessity of the risk corridors.
If insurers have a bad year, the administration says it has them covered. An HHS regulation issued in May indicated that the government would find "other sources of funding" if needed in order to pay risk corridor claims. That promise, however, is "subject to the availability of appropriations." That last caveat could be a problem. According to a January 2013 Congressional Research Service memo, there are no appropriations available for the risk corridors, which means the administration may have made a promise it does not have the legal authority to keep.
Pushing the Boundaries of Executive Authority
When it comes to Obamacare, legal authority has never proven much of a constraint for the White House. Since the law's passage in March 2010, the Obama administration has repeatedly relied on executive authority to alter the law's requirements and implementation procedures.
According to an ongoing count by the Galen Institute, a free market policy group focused on health care, the administration has used executive authority to change the law on 22 separate occasions. Those changes include extending Obamacare's "hardship waivers," which exempt certain individuals from the law's insurance requirement, to people whose health plans were cancelled; extending the enrollment deadline into April via the creation of a "special enrollment period"; allowing some people who purchase individual coverage outside the exchanges to access subsidies; and delaying the creation of the law's small-business exchange.
Some of the changes have had the effect of undermining the law's policy scheme. In March, for example, the administration allowed insurers two additional years to offer certain individual health plans that do not comply with Obamacare's requirements, and therefore were previously slated to be cancelled. The move was a political response to the outcry over a wave of health plan cancellations that directly contradicted the president's repeated promise that, under the law, people could keep health plans they liked.
But the result of letting otherwise disqualifying policies live on is that the new exchanges will be more heavily weighted toward people who didn't previously have insurance and are therefore more likely to be sick-meaning that insurers will be faced with smaller, less healthy, and less viable risk pools in the near term, and thus more likely to depend on risk corridor payouts from the administration.
Other changes were almost certainly illegal. In July 2013, the administration delayed for one year the law's requirement that employers with 50 or more employees provide qualifying health coverage or pay a penalty. In February of this year, that requirement was delayed an additional year for employers with between 50-100 employees, and the penalty was reduced for larger firms, conveniently moving the full, presumably painful implementation into 2015, beyond November's mid-term elections.
As Case Western University Law Professor Jonathan Adler wrote in The Washington Post at the time, "whatever the stated reason for the new delay, it is illegal." The text of the health care law states clearly that the employer requirement "shall apply" after December 31, 2013.
Even some supporters of the law agreed that the change was beyond the president's lawful power. Writing in The New England Journal of Medicine, University of Michigan Law School Professor Nicholas Bagley wrote that "the delays appear to exceed the traditional scope of the President's enforcement discretion," and "set a troubling precedent" of selective enforcement, one that could potentially be invoked by future administrations opposed to the law.
In the meantime, regardless of legality, it's unclear whether the administration will ever enforce the provision. "I don't think the employer mandate will go into effect," former White House Press Secretary Robert Gibbs predicted in April. "I think it will be one of the first things to go."
Health Spending Increases
Among the least discussed of the many Obamacare promises that have already been broken is the law's supposed dampening effect on national health spending. Obamacare, President Obama promised in March 2010, would "bring down the cost of health care for families, for businesses, and for the federal government." If anything, though, large hikes in overall health spending look to have returned after a very brief hiatus.
Between 2009 and 2012, the annual growth rate of health care spending did indeed decrease to less than 4 percent-its lowest rate in years, prompting Obamacare supporters to claim credit. "The bottom line is this," President Obama said at the end of March, "under this law, the share of Americans with insurance is up and the growth of health care costs is down."
But even then, there were signs that the spending slowdown would not last. It may already be ending. The federal Bureau of Economic Analysis reported that health spending in the fourth quarter of 2013 grew at 5.6 percent, up from 2.3 percent in the fourth quarter of the previous year. That faster-paced growth appears to be driven largely by increased use of health services, and it has continued into this year. National health spending in March 2014 grew 7.1 percent faster than in March 2013, the fastest annual rate since 2005, according to researchers at the Altarum Institute. In March, health spending as a share of the economy reached 17.9 percent-an all-time high.*
The Debate Isn't Over
Of all the problems that have bedeviled Obamacare supporters, perhaps the most frustrating one is how to get Americans to like the law. Since before the Affordable Care Act was passed, it has struggled in the court of public opinion, rendering the law politically unstable even if its policy scheme proves workable. And all the while prominent Democrats have been predicting that a majority of the public will finally support the law any day now.
But for the last four years, polls have conÂsistently shown that more of the public disapproves of the health law than approves of it, and large segments of the population support repealing it entirely. Democrats had bet that the law would become more popular once its biggest benefits kicked in, but if anything, opposition has only grown. On average, polls show that just over 52 percent of the public opposed ObamaÂcare as of May, according to RealClearPolitics. That's up slightly from an average of about 48 percent between the summer of 2012 and summer 2013. At the same time, 48 percent of the public wants Obamacare wiped from the books entirely, according to a May Politico poll, and another 35 percent say they want the law fixed and modified. Just 16 percent think it should be left alone.
"Based on what you know now," the poll asked, after noting the president's defense of the law and Republicans' ongoing criticism, "do you believe that the debate on Obamacare should be over, or not?" Some 60 percent of respondents said they believed discussion about the law's merits should continue.
President Obama may believe, as he insists, that the debate over Obamacare is now over, but as his power wanes, the public continues to disagree. Ï
Peter Suderman (email@example.com) is a senior editor at reason.
*Revisions made to Q1 2014 data made after this article was completed now find that, instead of an unusually large rise in health spending, health spending actually dropped.