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Health-Care Reform

The Once and Future Obamacare Death Spiral

The new enrollment figures look healthy until you notice one crucial vital sign.

Is Obamacare in the infamous “death spiral”? Paul Ryan says it is. The Obama administration, on the other hand, is touting its splendid enrollment growth numbers, a case summed up by Danny Vinik at Politico:

Last week, the Department of Health and Human Services released its first full enrollment report for 2017. As of December 24, about 11.5 million individuals had signed up for an ACA plan either on the Obamacare exchange or on the 11 state exchanges, a slight increase over the same period last year.

“If enrollment isn’t declining, then by definition the market can’t be spiraling out of control,” said Larry Levitt, a health care expert at the Kaiser Family Foundation.

Obviously these two things cannot simultaneously be true. Or maybe they can. To understand why, let’s review the recent history of Obamacare.

Last year, premium increases came in much higher than the program’s supporters had hoped or expected. A number of observers, including me, worried that we might be at the tipping point, where higher premiums cause healthier people to drop their insurance. When that happens, the average cost of covering the people who remain goes up, so premiums go up … which means that more people drop their insurance … which ultimately means disaster.

Larry Levitt’s point is that we haven’t seen that. Premiums went up, yet the number of people buying insurance didn’t shrink. Provided that the current premiums are enough to cover costs, and provided that people keep paying their premiums for the rest of the year, the market could certainly stabilize at this level.

We are certainly not in the dizzying late stages of a death spiral, when everyone can see where it’s going. But there are significant reasons for concern. For one thing, while enrollment did grow relative to the same period last year, it didn’t grow much -- roughly 2.4 percent. More than 1 percent of that can be accounted for by population growth, meaning that we’re still basically flat-lining with a whole lot of people still uninsured.

In particular, these are the young, healthy people you want on the exchanges, because they pay premiums without using much health care, lowering the cost of insurance for everyone else. Before Obamacare went live, the administration was saying it needed about 40 percent of the people on the exchanges to be between the ages of 18 and 34. It ended up with 28 percent, which is one reason the cost of insurance is so high.

Worse still, that percentage went down this year, as Vinik notes: “There was a slight drop in the proportion of younger enrollees: Of the people buying insurance on the exchanges, 26 percent were between the ages of 18 and 34, down from last year’s figure of 28 percent.”

That’s really bad news.

What stabilizes the exchanges isn’t simply increasing the number of people who buy insurance. It’s raising the number of healthy people who buy insurance. An influx of even more old and sick people will make the exchanges less, not more, stable. And while a growth in the number of policies sold isn’t what I’d expect to see if the exchanges were entering a death-spiral phase, an adverse shift in the age profile of enrollees absolutely is.

Now, Vinik is comparing last year’s final enrollment tally with partial enrollment data from this year; people have until the end of the month to enroll. It may be that younger and healthier people, who have less urgent need for insurance, will simply wait until the end of the month to buy in, bringing the age profile back to where it ought to be. But as of now, these numbers are not wildly confidence-inspiring. Nor is the fact that so many counties in the U.S. only have one insurer willing to offer insurance.

There are other reasons to worry. As I’ve noted before, Obamacare is on life support, requiring regular cash transfusions of dubious legality, and insurer-friendly regulatory rulemaking, to keep the exchanges even in their current parlous shape. If the new administration stops being so helpful, even if it makes no change in the law at all, there’s a good chance that insurers will pull out, and the death spiral will enter the point of no return.

And that’s before we come to the shambles in Republican health-care policy-making right now. Trump has nominated Tom Price to head the Department of Health and Human Services. He is a conservative reformer who wants to cap the tax advantages of employer-provided benefits, and tilt the market toward consumer-driven health care with the use of medical savings accounts. He also would offer smaller but broader tax credits to help people buy insurance, and deal with the problem of the uninsurable by creating high-risk pools. You can argue about whether this is good policy, but at least it’s a coherent vision.

Unfortunately, it doesn’t seem to be shared by our future president, who repeatedly fumbled even basic sound bites on health care during the campaign, and has suddenly started promising that we’re going to have insurance for everyone. (Details to come later, he says.) And congressional Republicans seem to be careening toward repealing whatever bits of Obamacare they can in order to put a win on the board, even if the bits that are left inexorably destroy the individual market for health insurance and leave us worse off than we were before.

In a normal administration, we could make at least some broad predictions about where health-insurance policy was likely to end up in six months. But at this point, any number of wildly divergent scenarios seems possible. Congress could repeal the whole thing -- or just the subsidies and the individual mandate. This would unquestionably send the market into a death spiral.

Trump might veto whatever they do pass. Tom Price might quietly tell the HHS to stop all the ingenious juggling they’ve done to try to keep the exchanges afloat -- or Trump could demand more money from Congress to pour into them.

The only thing we can be certain of right now, in other words, is uncertainty. But when the exchanges are already frail, uncertainty itself can be fatal. Unless the shape of health-care policy becomes clear pretty soon, insurers are going to want to be compensated for the extra risk when they start setting next year’s rates this spring and summer. How do they get that compensation? Through higher premiums.

In other words, while reports of a death spiral may have been greatly exaggerated, we can’t rule out a fatal event sometime in the near future. And that gives observers of every ideological stripe a lot of room to see what they’re already expecting.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

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

    To contact the editor responsible for this story:
    Katy Roberts at kroberts29@bloomberg.net

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