Threat Of Obamacare Death Spirals Is Still Very Real

The Wall Street Journal highlights how young Americans aren’t signing up for health policies through Obamacare in the numbers needed to avoid the “death spirals” for insurance companies.

For the first time HHS also disclosed data about the demographic mix on the exchanges and the types of plans people are choosing. In rational insurance markets this wouldn’t matter because people would be charged premiums roughly proportional to their expected health risks. But ObamaCare’s regulations require younger and healthier people to be overcharged in the name of equity and income redistribution, and if they don’t report for duty then rates will surge over time.

Age is a crude actuarial proxy for health status, and merely 24% of enrollees are between ages 18 and 34. ObamaCare’s economics needs that to rise to about 40% to achieve a critical mass. Enrollment also skews heavily to people 55 to 64 years old, at 33%.

Insurance policies plunge into a “death spiral” when premiums don’t cover the cost of claims, causing rates to surge year over year and more and more beneficiaries to drop coverage. This “adverse selection” already appears to be underway in eight states including Maryland, Washington, Ohio, Texas and Indiana. (Read More)

So contrary to what some liberal pundits may tell you, the threat of death spirals is very real. A friend of mine asked a friend of his who is an insurance company executive how long he thinks it be until the death spiral really kicks in. “2-3 years max…..the exchanges will be dumping grounds for bad risk.  A lot of our self-insured groups are thinking about offering their high risk members incentives to leave their group plans for the public pools by paying their premiums in full…..apparently it’s legal.”

Even worse, if we’re able to elect politicians who will repeal this horrible law, the individual market will be destroyed by then, as economist John Goodman pointed out to CNS News last week.

However, if Obamacare does go belly up, there will be no easy way to replace it, Goodman warned. “We have destroyed the individual market, and it’s going to be very, very hard to move from where we are now to a real market, where people face real prices, which is what I think we have to do,” he said.

“Republicans who say we’re just going to abolish Obamacare need to be aware of the fact that they can’t just go back to the individual market, because it’s being destroyed. We need to think carefully about how we can get out of the mess we’re in, [because] just repealing the legislation isn’t going to be enough.” (Read More)

What a mess. No wonder they’re making it so hard for people to cancel their Obamacare plans.