McArdle worries that Obamacare is entering a “death spiral,” where young and healthy individuals don’t buy coverage and thereby drive up premiums:
[W]hat we have now is a situation where only the extremely persistent can successfully complete an application. And who is likely to be extremely persistent?
1. Very sick people.
2. People between 55 and 65, the age band at which insurance is quite expensive. (I was surprised to find out that turning 40 doesn’t increase your premiums that much; the big boosts are in the 50s and 60s.)
3. Very poor people, who will be shunted to Medicaid (if their state has expanded it) or will probably go without insurance.Insurance that is only sold to these groups is going to be very, very expensive. Not the first year — President Barack Obama was in the Rose Garden just this morning, touting the fantastic cost savings available to the old and sick people whom Obamacare was already helping. But if those are the only people who sign up, insurers will lose a bunch of money on these policies. And then next year, they’ll ask for a lot more money.
Adrianna McIntyre, on the other hand, argues “delaying the individual mandate for a year wouldn’t provoke a full death spiral” because “there are deep-in-the-weeds protections baked into the Affordable Care Act” that “aid insurers if they wind up enrolling a population that is sicker and more expensive than projected” during Obamacare’s first few years:
Basically, today’s worst-case scenario is that HealthCare.gov takes months to fix and the mandate is delayed until 2015, resulting in widespread adverse selection. Insurers wouldn’t recoup all losses, but the risk corridor program provides their bottom line with a substantial buffer. Importantly, it doesn’t need to be budget neutral; if the math demands it, the government can pay out more than it collects through the program. This could be expensive—the CBO scored the health law as though risk corridors were budget neutral—but it could also be offset by foregone subsidies.
Insurers have a stake in Obamacare’s success; that doesn’t magically disappear if 2014 enrollment is rockier than anticipated. The the risk corridor program continues through 2016, which would allow plans to weather 2014′s uncertainty and probably keep the following year’s premiums relatively unchanged as the risk pool normalizes.
The real risk of delaying the individual mandate is long-term political fallout from Obamacare being labeled a “fiasco”, not the dreaded insurance death spiral.
Barro agrees that insurers will do everything in their power to avoid a death spiral:
Health insurers are eager to add tens of millions of new customers and have every reason to work to prevent a death spiral. Even if website problems that drag into 2014 cause the participant pool to be disproportionately sick, and insurers take a bath for one year, they will be motivated to price in a way that draws healthy participants in for 2015, so long as the website is working well by fall 2014, when 2015 enrollment starts. Still, it would be best to avoid the problem altogether.
The Dish 