There Will Be No Insurance Death Spiral
In their efforts to defend the individual mandate, supporters of the Affordable Care Act appear to have gotten way too many people to actually buy into the spin about a so called “death spiral” if young people don’t sign up on the Obamacare exchanges.
As a result there is now a lot of talk about a “death spiral” and “unraveling” if the problems with Healthcare.gov aren’t fixed in time, but there can’t be a death spiral. At worst it will just hit with an anemic thud.
Doing the heavy lifting at preventing a death spiral on the exchanges are the premium subsidies. The way the premium subsidies are calculated assures that a true self-feeding spiral is impossible. For most people on the exchange making below 400% FPL the actually sticker price of the premium doesn’t really matter, because what they will be required to pay is based on a set percentage of their income. If the actual premiums go up or down it has almost no impact on what insurance will cost them. They are insulated from premium fluctuations, so an increase in official premiums will not push them out of the market.
There are enough people in this subsidy group to always create a decent enough risk pool. For example, there are some six million low income people who could use the subsidies to get the cheapest plan for free.
Bad enrollment is mainly just a concern for the subset of people earning too much to qualify for exchange subsidies. It could lead to higher premiums for them in the future and push some of the healthier individuals in this group out of the market, but the subsidy population will inherently serve as a floor for the risk pool. This limits how far things can spiral.
The law doesn’t “unravel” if young people refuse to sign up, it just ends up somewhat more costly and less effective than the administration hoped. Of course the second they decided to go with this absurd design they guaranteed it was always going to be needlessly wasteful and inefficient.
Photo by martinak15 under Creative Commons license