New Jersey: Does Seema Verma have a point for once?? Nah, probably not.

So, a couple of hours ago, CMS Administrator Seema Verma tweeted out the following:

.@coveredca blames subpar enrollment on no federal mandate penalty, but NJ kept penalty and saw much, much bigger drop. Forcing Americans to buy insurance they can’t afford isn’t the answer.

— Administrator Seema Verma (@SeemaCMS) January 31, 2019

Last fall, I reported that thanks to the one-two punch of a) reinstating the ACA's individual mandate penalty at the state level and b) using the revenue generated from the mandate penalty to help fund a robust reinsurance program, the state of New Jersey had successfully lowered average unsubsidized premiums for 2019 individual market policies by a net swing of nearly 22 percentage points.

Instead of increasing by 12.6%, these measures resulted in avg. premiums dropping by 9.3%...or around $1,500 per unsubsidized enrollee for the year. Nearly $1,000 of that average drop is thanks to the reinsurance program; the other $470 is due to reinstating the mandate penalty.

However, I had one big concern about this, which I pointed out in early December:

There's only one problem with this: The impact of the mandate penalty is completely psychological in nature. It only works (to the extent that it does at all) if people know that they'll be penalized financially for not complying with the mandate.

Remember, the point of the mandate is not to add $700+ to the tax burden of a bunch of people; the point of it is to encourage them (detractors would say "goad") into enrolling in an ACA-compliant policy. The more (presumably relatively healthy) people do so, the healthier the ACA market risk pool is. This expectation is the very thing which caused New Jersey insurance carriers to lower their 2019 premiums by 5.8% in the first place.

HOWEVER...what if no one (or hardly anyone) in New Jersey knows about the penalty still being in place?

I noted at the time that according to the few NJ sources I have at my disposal, there didn't seem to be much of a concentrated effort to let New Jerseyians know that the mandate penalty is still in place there (it's the same amount, just paid to the state instead of the federal government). NJ launched a nifty new portal website which does include a notice about the coverage requirement...but the only way anyone would see the notice is if they visited the website in the first place, which anyone planning on skipping coverage isn't likely to do.

The federal penalty being repealed was a major news story last year, so the odds are high that a lot of NJ residents were quite certain that it wasn't around anymore. Getting the word out would be admittedly problematic, given that NJ is dominated by the New York media market (and NY didn't reinstate the mandate, so any advertising from there wouldn't say anything about it either). Without a robust, concentrated campaign, there's a good chance that the NJ penalty was barely known of by the public at large...and if that's the case, it wouldn't have had much impact.

So, what ended up happening in New Jersey? Well, when the dust settled, on-exchange enrollment dropped by 7.1% year over year, from around 275,000 people to 255,000, or around 19,500 people. Not so great. However, there's several important caveats:

• First, this doesn't include off-exchange enrollment. In Q1 2018, they had around 89,000 effectuated off-exchange QHP enrollees. If the Q1 2019 off-exchange number also drops significantly, then the odds are that the reinstated mandate penalty went either unknown or unheeded. If it holds close to 89K, on the other hand, that suggests that a decent number of unsubsidized enrollees did enroll (grudgingly, perhaps) due to the mandate still being around. You'd really have to compare this with the off-exchange impact in other states as well, however.

• Second, while NJ's 7% on-exchange drop isn't anything to cheer, they still outperformed at least 14 other states, some of which saw enrollment drop by as much as 18%. It's entirely possible that the state-based mandate did shore up enrollment, which might otherwise have dropped by twice as much. This is something which can never be proven one way or another, unfortunately.

• Third, even if the mandate didn't turn out to be successful at shoring up enrollment (again, no way of knowing yet), it was successful in lowering unsubsidized premiums by an average of $470 per enrollee. Assuming around 89,000 off-exchange enrollees and ~57,000 unsubsidized on-exchange enrollees (around 22.6% of NJ's on-exchange enrollees were unsubsidized last year), that's roughly 146,000 New Jersey residents who are saving a collective $68.6 million in premiums this year due specifically to the mandate penalty being reinstated. That's nothing to sneeze at no matter what. It could even be argued that the state mandate is responsible for the entire $1,500/enrollee savings, since the way the state is able to fund the reinsurance program in the first place is due to the revenue from the mandate penalty. No penalty, no reinsurance, and therefore no premium savings.

In summary: While Seema Verma may pooh-pooh NJ's mandate penalty, the truth is a lot more complicated than "NJ dropped w/mandate, therefore mandate sux". There's just too many variables and too poor a signal to noise ratio to be sure here.

As for California, it's worth noting that unlike New Jersey, which was at the mercy of the HealthCare.Gov marketing and navigator/outreach budgets (which were stripped down by 90% last year), California operates their own full ACA exchange, including their own robust marketing budget. Heck, Verma even notes this in her follow-up tweet:

.@cacovered also spent $100 million on advertising. Mandates aren't the answer, and advertising isn't the answer. Americans need more choices and more affordable healthcare options.

— Administrator Seema Verma (@SeemaCMS) January 31, 2019

This is a rather curious thing for Verma to tweet, since all it does is call attention to the fact that it was the Trump Administration (and her specifically) who slashed HC.gov's marketing and outreach budget in the first place. CoveredCA also had a longer Open Enrollment Period than New Jersey which, again, is due to CMS slashing HC.gov's period in half (to be fair, this was already being recommended for 2019 under the Obama Administration).

So really, Verma's second tweet just underscores that yes, advertising does help. In fact, it's very likely that CoveredCA's $100M marketing budget and longer enrollment period helped cancel out much of the drop-off caused by the mandate being repealed. That doesn't really help her case much.

In any event, assuming California does go ahead and reinstate the mandate as Gov. Newsom is pushing for, there's no guarantee that it will boost enrollment...but there's lots of evidence that it will a) lower premiums by at least a couple hundred dollars per unsubsidized enrollee and b) fund subsidies for those earning 400-600% of the poverty line and additional subsidies for those earning 250-400% FPL. That would be a huge plus regardless of the enrollment numbers.

While I'm on the subject, I should also take a look at Massachusetts, which also still has a financial penalty for noncompliance with adequate healthcare coverage. MA didn't have to pass a law...they simply dusted off the one they already had for six years before the Affordable Care Act mandate went into effect. The penalty formula is different from the now-defunct federal one, but it's very similar in nature.

Massachusetts had several advantages that New Jersey didn't have this past fall:

• First, MA has had a healthcare coverage mandate for 12 years now (vs. NJ's 5 years); it's long since become embedded into the general consciousness, unlike other states which were still getting used to it.

• Second, MA takes their mandate penalty very seriously...the state exchange launched a fully-funded education/awareness campaign to make sure that everyone knew that they had reverted back to their own state-based mandate penalty, including pamphlets/brochures, a social media campaign, TV/radio ads (I think) and so forth.

• Third, and perhaps most importantly: Unlike NJ and every other state except Vermont, Massachusetts offers their own supplemental subsidies to low-income enrollees on top of the ACA's premium and cost-sharing assistance.

Result? Massachusetts wrapped up the 2019 Open Enrollment Period with over 300,000 exchange-based enrollees. Not only did this surpass 2018's total by over 12%, it continued a 5-year record-breaking streak: MA has surpassed the previous yearly enrollment number for five years straight. Oh yeah, it also likely helps that Massachusetts continues to have the lowest unsubsidized premiums in the country, averaging $402/month in 2019.

The lesson here seems to be that the combination of the penalty and robust outreach/marketing and enhanced subsidies can make all the difference in the world. Unfortunately, Seema Verma and the rest of the Trump Administration have taken measures to cripple or eliminate all three of these.