Obamacare: 'Adverse Selection' Followed by a 'Death Spiral'

NCPA October 30, 2013

Sean Jackson, like tens of thousands of other Americans, has had trouble signing up for medical coverage using the HealthCare.gov insurance marketplace despite several attempts. The economists and policy wonks behind the Affordable Care Act worry that the technical problems bedeviling the federal portal could become much more than an inconvenience, says Annie Lowrey, writing for the New York Times.

If applicants like Mr. Jackson decide to put off or give up on buying coverage, rising prices and even a destabilized insurance market could result.  The enrollment of people like Mr. Jackson, who is 32, is vital for the health care law - and, for that matter, the entire health care system - to work.

• Younger people, who tend to have very low anticipated medical costs, are supposed to help pay for the medical costs of older or sicker enrollees.
• Without them, so-called risk pools in Ohio and other states might become too risky, forcing insurers to raise premiums.
• Those higher premiums could dissuade more of the young and healthy from signing up, forcing insurers to raise prices again.

Economists call the process "adverse selection" and warn that in its worst iteration it could lead to a "death spiral" of falling enrollment and climbing prices.

Economists and health analysts said the chances of such a spiral were slim in most states because Americans who go without insurance would face penalties, starting next year. But they said that the endemic problems with the Web site posed a serious question about the enrollment balance in many state plans.

Though economists, insurers and health analysts are concerned about the problems with HealthCare.gov, which the Obama administration has promised to fix by Nov. 30, they said it was too early to tell whether the problems would cause an underenrollment of the young and healthy.  Insurers would have a good sense of any problems by next spring, they said.

No statistics are available on how many of them have signed up. States are providing no demographic details on enrollees. And the Obama administration has declined to say how many people have purchased insurance in the 36 states where it runs the exchanges.

Source: Annie Lowrey, "Health Site's Woes Could Dissuade Vital Enrollee: the Young and Healthy," New York Times, October 27, 2013.