Obamacare Still in ICU

Megan McArdle is a Bloomberg View columnist. She wrote for the Daily Beast, Newsweek, the Atlantic and the Economist and founded the blog Asymmetrical Information. She is the author of "“The Up Side of Down: Why Failing Well Is the Key to Success.”
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Ezra Klein writes that we can stop worrying about an insurance "death spiral":

3. The big question is what enrollment looks like on April 1 -- after the open enrollment period ends. The "important thing to watch," writes the Kaiser Family Foundation's Larry Levitt, "is [whether] enrollment among young adults trending upward? So far yes, based on graphs here." It's safe to say there will be many more young adults in the pool in April then there are now. But no one knows how many more.

4. The risk of a "death spiral" is over. The Kaiser Family Foundation estimates that if the market's age distribution freezes at its current level -- an extremely unlikely scenario -- "overall costs in individual market plans would be about 2.4% higher than premium revenues." So, in theory, premiums costs might rise by a few percentage points. That's a problem, but it's nothing even in the neighborhood of a death spiral.

5. That calculation, however, omits the transitional policies in Obamacare that help insurers keep premiums low as the risk pool sorts itself out over the first three years. Add those in, and it's unlikely that 2015 will see any premium increase at all. Robert Laszewski, a consultant for the insurance industry, agrees. "I think the 2015 rates will be the rates you're looking at today, more or less," he says.

I think two things are true: Insurers are shaping up to take losses on all their exchange policies in 2014, and they will probably stick around in 2015 -- unless Republicans manage to curtail the extra cash the insurers expect to get via the risk-adjustment mechanisms and perhaps some administrative rule changes.

But I am interested in the idea that insurers will stick around, which suggests that we're already seeing the demographics of the exchange improve over time. If true, that would be pretty big news. Here are the two charts that Levitt seems to be looking at:

Source: Centers for Medicare & Medicaid Services, as of 1-9-2014

Source: Centers for Medicare & Medicaid Services, as of 1-9-2014

It is true that the number of young adults enrolled in the program is rising. But eyeballing the graph, I don't see the ratio of young enrollees to overall enrollment rising at all -- if anything, it seems to fall very slightly between the end of Week 9 and Week 13. (There are no numbers to go with the charts, so it's hard to be entirely sure.)

Of course, the ratio is mostly what we're worried about, not the number; getting an extra 100,000 young people to sign up while you get an extra 500,000 old people doesn't improve the stability of the insurance markets -- it makes them more unstable.

Of course, we still have the Massachusetts experience. But the more I think on that, the less confident I am. The chart I swiped from Jonathan Cohn for yesterday's post shows a positive trend -- but it's only for Commonwealth Care, the subsidized program, not the overall market. And Massachusetts didn't, as far as I am aware, have the same rash of mass cancellations, so they only had one enrollment spike, not two, as Garance Franke-Ruta showed in October.

We're in uncharted territory here. The numbers we have probably aren't very good guides to the future. But that shouldn't necessarily make us more confident.

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Megan McArdle at mmcardle3@bloomberg.net