More Evidence of Death Spirals Ahead
July 7, 2015
Can the (ObamaCare) health insurance exchanges continue to function as stable, workable health insurance marketplaces? There is increasing evidence that they cannot. In a previous post I wrote:
A death spiral occurs when an insurance pool becomes increasingly sicker and more expensive. The initial premium charged turns out to be too low, given the health care costs incurred. So the insurer raises the premium in the second insurance period. But that higher premium causes a loss of some of the healthier enrollees and therefore it is also lower than it needs to be to cover the costs. So in the third period, there is another premium increase followed by a loss of more enrollees. This process continues until the premium becomes so high that even the sickest patients cannot afford to remain in the pool.
Evidence suggests that we are headed that way. Writing in The New York Times, Robert Pear notes that around the country insurers are asking for rate increases in the range of 20 to 40 percent. The reason? This is the first time insurers have a full year of experience to evaluate who their enrollees are. And they have concluded that people buying insurance in the exchanges are older and sicker than what was originally projected. As a result:
Blue Cross and Blue Shield plans—market leaders in many states—are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.
