Gaming of Obamacare Poses a Fatal Threat

In November, UnitedHealth abruptly reversed its previously sunny take on Obamacare and said that the company would have to pull out of the government-run exchanges if market conditions didn’t improve. The problem: People signing up during “special enrollment” (the majority of the year that falls outside of the annual open enrollment period) were much sicker, and paying premiums for much less time, than the rest of the exchange population. The result: Those policies were losing a ton of money.

UnitedHealth’s bombshell raised the specter, once thought safely in the grave, of the “adverse selection death spiral,” the phenomenon where sick people are more likely to buy insurance, which raises the average expenditure, which means higher premiums, which makes insurance a worse deal for the healthiest members of your insurance pool, which means they drop out, which means your pool is even sicker and average expenditure goes up even more … and there goes the insurance market.