Why Did the Uninsured Rate See Its Biggest Increase Since 2008?

From the last quarter of 2016 to the last quarter of 2017, there was a 1.3% increase in the uninsured rate, according to Gallup. This 1.3% increase means 3.2 million Americans became uninsured in 2017. It's the biggest year-to-year increase in the uninsured rate since 2008, which was before the passage of Obamacare.

Why did so many more Americans become uninsured? There are a lot of reasons, and we'll take a look at some of them here.

The individual market saw the biggest change

First and foremost, it's clear where the increase in the uninsured population came from: the individual insurance market -- the people who buy private policies on the Obamacare exchange or directly through insurers. In the final quarter of 2016, a total of 21.3% of Americans indicated they purchased insurance coverage themselves in the private marketplace. By the last quarter of 2017, this number had fallen to 20.3%, a full percentage-point decline.

According to Gallup, this is a direct reversal of a multi-year trend. In 2013, Obamacare's mandate -- the penalty for not buying insurance -- went into effect. Then, from 2013 to 2016, there was a 3.7% increase in Americans buying insurance on the private market.

But from 2016 to 2017, the number of Americans buying these policies went down for the first time since the mandate became enforceable, even as other sources of health insurance coverage such as Medicare, Medicaid, military insurance, and union-provided insurance remained steady. The number of policyholders covered by an employer also declined from 2016 to 2017, but the decline was just .6 percent.

Let's look at what happened in the private marketplace that caused fewer consumers to take part.

Policy premiums rose -- driving out the young and healthy

Gallup cites rising premiums as one of the likely reasons for the decline in the number of Americans buying private policies. When insurance coverage becomes more expensive, fewer people buy it. And insurance became more expensive in 2017.

Kaiser Family Foundation indicated premium increases on the ACA marketplace would be greater in 2017 compared with prior years, thanks both to insurers adjusting for past losses and the phasing out of a reinsurance program in place from 2013 to 2016. The reinsurance program also left insurers with larger-than-expected losses when it failed to provide promised payments to insurers with a disproportionate share of costly claims.

Changes in insurer participation in the individual market also drove costs upward and left insurance buyers in the private marketplace with fewer choices. While 85% of insurance buyers had a choice of three or more insurers in 2016, just 58% had that same level of choice in 2017.

Unfortunately, when costs go up, the young and healthy are the first to drop out -- and Gallup data shows this occurred. In 2017, the uninsured rate among Americans between the ages of 18 and 25 rose 2%. If this trend continues, an insurance death spiral is a real risk.

Americans were confused about whether the insurance mandate will be enforced

The insurance mandate was a key component of Obamacare before it was repealed as part of the 2017 tax reform bill. The sharp uptick in Americans buying coverage in the individual marketplace when the mandate went into effect showcases the importance of this mandate in driving the purchase of insurance. The Congressional Budget Office also estimated the repeal of the mandate beginning in 2019 would result in 4 million people fewer people obtaining coverage during the course of the 2019 year alone.

While the mandate wasn't actually repealed until December of 2017 and it's still in effect until 2019 even after repeal, many Americans were confused in 2017 about whether the mandate still applied. More than half of Americans responding to an October 2017 poll either didn't know whether Obamacare was still in effect or thought it had been totally or partially repealed. Even among those who knew the law and mandate were still in place, it was an open question whether Trump would actually enforce it.

Given that there was so much uncertainty about whether the requirement to purchase health insurance would survive, it's no surprise that significantly fewer people bought plans for this year.

There was way less advertising and outreach for Obamacare

The Obama administration spent more than $100 million advertising open enrollment in 2016 and partnered with outreach groups to target populations with high uninsured rates. These efforts were credited with helping to secure insurance coverage for more than 4 million Latinos. As a result, Latinos experienced the most substantial drop in the uninsured population of any demographic group.

The Trump administration essentially ended outreach efforts and dropped the advertising budget down to $10 million. The result: Hispanics saw a 2.2% increase in the uninsured population in 2017, and black Americans saw a 2.3% increase. Lower-income Americans saw a 2% increase.

By comparison, middle-income Americans had a 1.4% increase in uninsured rates, and high-income Americans saw just a .8% increase.

What happens now?

Whether the uninsured rate continues to rise in 2018 will depend upon what, if anything, is done to bring premiums down. While there's a bipartisan effort to stabilize insurance premiums, a dispute over abortion policy may make passage of legislation impossible. And with some prominent Republicans still hoping to move forward with Obamacare repeal -- which has little chance of passage -- little likely will be done to stabilize Obamacare in the short term.

However, the November 2018 election could potentially change the calculation, depending upon which party ultimately winds up in control of the House and Senate.

The only thing that's certain is that fights over Obamacare may continue. Insurers tend to dislike uncertainty, and those who buy individual coverage probably will be the ones who'll suffer due to a continued lack of solutions. If fewer of those insurance buyers decide to get coverage, the uninsured rate will continue to rise.

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