Scary, Unexpected "ACA Attrition Report" Neither Scary nor Unexpected.

Hat Tip To: 
Charles Ornstein

Thanks to Charles Ornstein for giving me a heads' up about an article in Yahoo Finance (reposted from Investors Business Daily) today, which has a rather loaded headline and lede:

ObamaCare Enrollment Falling Significantly, Insurers Reveal

ObamaCare exchange statistics should clear up any doubt as to why the Obama Administration has been tight-lipped about enrollment since celebrating 8 million sign-ups in mid-April.

Reality, evidence suggests, could require quite a come-down from those lofty claims.

The nation's third-largest health insurer had 720,000 people sign up for exchange coverage as of May 20, a spokesman confirmed to IBD. At the end of June, it had fewer than 600,000 paying customers. Aetna expects that to fall to "just over 500,000" by the end of the year.

Yup, on the surface that does look pretty bad. Or, at least, it would, if a) that was representative of the trend as a whole and b) if I hadn't already addressed the "attrition" factor several times in the past.

Regarding the Aetna number: Yes, it's true, if Aetna ends the year with 500K paid QHPs by the end of the year, that would indeed represent a 30% drop from 720,000 paying customers. However, if you read the above quote carefully, notice that isn't what it says; it says they had 720K "sign up" as of May 20.

In fact, take another look at the last Investers Business Daily piece I've written about, and you'll notice something very interesting about halfway down:

Aetna says that out of 720,000 sign-ups, only about 580,000 were paid up by May 20, a payment rate of only 80.6%.

Hmmm...interesting, since according to Bloomberg News, Aetna's official testimony before Congress gave the paid number as in "the low to mid-80 percent range"...as of May 7th. "Low to mid-80's" would suggest around 83%, or 598K. Not sure how that number dropped by 18,000 over the next 2 weeks. Clerical error on Aetna's part?

The point is, that you can't simply divide 500K/720K to get the attrition rate. You have to divide by the number of paid enrollees, which was 580,000..."as of May 20th". That's right, "at the end of June, it had fewer than 600,000 paying customers"...not exactly shocking since you already said that only 580K had paid as of 6 weeks earlier.

In any event, depending on whether you go by the 80% or 85% paid rate, that means that Aetna does not expect to have a net loss of 220,000 paying customers by the end of the year; they expect to lose only between 80,000 (13.8%) to 98,000 (16.4%) by then. Let's split the difference and call it an even 15% attrition, assuming that this already accounts for additions as well (ie, additional people enrolling during the off season).

Please note that I'm not saying that those other 108K-144K people should be counted as paying customers; I'm simply pointing out that they've already been subtracted from the total (at least I've done so, anyway...although I'm pretty confident that the actual number is more like 72,000 than 108K-144K anyway). Subtract them, yes...but don't do so twice.

15% attrition is a hell of a lot better than 30%. Over 6 1/2 months, that's around 2.3% per month.

How does that compare with other companies on the exchanges?

Well, there's two other data points given in the IBD article, although neither of these get the screaming headline:

Cigna (CI) said that it expects its individual market customers, including more than 100,000 in the exchanges, to "move from 300,000 down to 280,000 in that range," Cigna CEO David Cordani said in a conference call.

Hmm...they don't specify what portion of that 20K loss they expect to come from the 33% in the exchanges, but assuming it's proportional, that's a loss of around 7,000 out of 100,000 by the end of the year...or just 7% attrition, or just over 1% per month. Huh.

...Another data point comes from Washington, the only state that didn't report sign-ups to HHS until they paid an initial monthly premium. As also pointed out by Charles Gaba of ACASignups.net, the state's exchange had 164,062 paid enrollees as of April 23. But the state reported 156,155 people enrolled as of June 1.

I appreciate the shout-out, I really do. However, that 164,062 number was actually as of March 31st. You see, WA is one of two states (Connecticut is the other one I know of) which did not participate in the open enrollment "extension period". That means the 5% attrition rate (156,155 / 164,062) number reflects the attrition rate after 2 months...or around 2.5% per month.

So. We have monthly attrition rates of 2.3% projected, 1% projected and 2.5% confirmed.

Which, by an amazing coincidence, happen to fall right in the middle of the 2-3% range that Robert Laszewski, Chris Conover and I all agree seems to be about right.

In other words, a 2.5% monthly attrition rate is not only nothing to be alarmed about, it's exactly what I've been projecting for awhile now.

In addition, there's another factor to consider: Why are these people "dropping out" of their Aetna (and other) private healthcare plans? Well, I can think of plenty of reasons which come to mind:

  • According to the March/April HHS Report, out of the 8.02 million who enrolled as of 4/19, 25% of them were between 55-64 years old at the time. I don't know if that's evenly spaced for each year, but if it is, that means around 2.5% (200,000) of them were 64 years old. Guess what happens to 64-year olds over the next 12 months? They turn 65 and qualify for Medicare.
  • Some of these folks might have fallen on hard times and now qualify for Medicaid...especially since half the states expanded it.
  • Others might have had a positive turn of events, gotten a job with benefits, and moved to Employer Sponsored Insurance. Note to conservatives: People gaining decent employment with benefits is a good thing.
  • Others might have gotten married to someone who already has coverage through their job. Note to conservatives: People getting married is supposedly a good thing, remember? (Oh, right, unless they're gay, but that's a whole other issue...)
  • Still others might have joined the military and are now covered by the VA (again, We Love the Troops, right?).
  • A few might have left the country and become expatriots, or denounced their U.S. citizenship ("Gone Galt", I believe the term is).
  • Finally, some of them might have, you know...died. It does happen to all of us sooner or later, after all.

The point is this: NONE of the reasons listed above is a reason to wring your hands or attack the ACA. These are all normal things that people do, and for the most part they're simply the flip side of the very same reasons why people are still enrolling in QHPs during the off-season: Major changes in lives.

Just as around 9,000 people are enrolling per day right now, presumably a similar number (or possibly somewhat higher) are dropping their coverage as well. There is nothing wrong with this, as long as their reason for doing so is on the above list (or a handful of others I've forgotten to include).

In the end, assuming 9K/day being added, around 90% paying for their first month and around 2.5% per month being subtracted, I estimate that we'll end 2014 with a total of roughly 7.3 million still on the books. If those three numbers are off a bit this way or that, it could be a bit higher or lower; figure somewhere between 7 - 7.5 million.

And then we're into the 2015 enrollments and the whole thing starts all over again...

UPDATE: I see that the Daily Caller has picked up this ball and is trying to run with it. Even more depressingly, the reporter who wrote their story follows me on Twitter and posted her piece a couple of hours after I had already debunked it. Not saying that she should be expected to read everything I write, but given that the topic at hand is ACA Enrollments, you'd think that she'd have checked to see if I chimed in on it first...