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June 02, 2015

David Hogburg: The ObamaCare Death Spiral Is Still Coming

Rumors of the death spiral's demise have been exaggerated.

A death spiral occurs when not enough young and healthy people sign up for health insurance. Thanks to Obamacare’s design, a death spiral is inevitable. Here's why.

Obamacare’s community rating results in insurance prices that are higher for younger people than they would be in a free market, and its guaranteed issue allows people to sign up for insurance even if they get sick, so young and healthy people have ample incentive to forgo insurance. This leaves the insurance "risk pool" older and sicker and, hence, more costly to insure. Premiums will have to rise to cover those costs, leading some of the younger and healthier people who did initially sign up to then drop out. The risk pool then becomes even older and sicker, premiums rise again, and the process repeats.

A study by the late Conrad Meier examining the effect of these laws on eight states shows that premium hikes of at least 20 percent (and usually higher) are the canary in the coal mine for a death spiral....

[W]hile I personally expected the death spiral to begin in 2015, there is no rule saying it always happens right away. Sometimes it does. Premiums in New York’s small group and individual health insurance markets began skyrocketing about one month after the state legislature imposed guaranteed issue and community rating on those markets in 1993.

Other times, it can take a few years. New Jersey passed similar laws in 1992, yet the death spiral didn’t begin there until 1996 because New Jersey’s law contained a mechanism whereby insurance companies could pool their losses.

Hogburg thinks Obamacare's three-year "risk corridors" are like NJ's insurance pools-- only delaying the death spiral.

But I'm sure that Obamacare's prices aren't rising by 20% (where a death spiral is thought to begin).

Except in those states that they are. At the Washington Examiner:

Health insurers are proposing to raise Obamacare rates more than in the past -- some by more than 70 percent --now that they are finally equipped with all the information they need to price those plans.

...

Insurers have sold plans in the law's new insurance marketplaces for two years in a row. But the difference in 2016 is that for the first time, they have a full year of claims data from enrollees that tells them how high or low to set the price tag.

"This is the first time that insurers have access to a full year of claims under the [Affordable Care Act] in order to project premiums," Kaiser Family Foundation analysts Larry Le

Until now, insurers have had to mostly guess at who would enroll in Obamacare plans. If the enrollees tended younger and healthier, they could price plans lower. But if they ended up being older and sicker, prices would need to be higher.

And with year two of Obamacare enrollment concluded, there are more older enrollees than younger ones. Almost half were older than age 44, according to final enrollment data from the Obama administration.

Experts are predicting rates will escalate faster next year than in the two years prior, as insurers take a close look at who is enrolling in Obamacare plans to get a good sense of the overall picture.

So that's something to look forward to.


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posted by Ace at 12:50 PM

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