The ObamaCare "death spiral" scenario is about the states, stupid

The “death spiral” is a real thing. In 1994, Kentucky started requiring insurers to offer coverage to those with pre-existing conditions. Within two years of enactment, about 60 insurers had left the individual market, leaving the state with just one private insurer and a government-run option. State lawmakers had to rescind the regulations to bring back insurers. Other states that passed similar reforms, such as Maine and Washington, had a similar experience with the erosion of the individual market.

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Obamacare was supposed to prevent this problem by attracting young and healthy shoppers through a combination of carrots (in the form of subsidies) and sticks (in the form of an individual mandate). And also mitigate the financial risk to insurers through a combination of policies. But those policies may not be sufficient, at least not in every state.

Under such a scenario, in which there are a certain number of state-based death spirals, insurers may simply choose to exit the individual market in under-performing states.

Such a set of circumstances could scramble the current health care policy debate. On the one hand, Republicans may find it difficult to repeal a law if a large number of residents of some states are benefiting from it. On the other hand, Democrats may find it difficult to dig in if the individual markets are collapsing in other states.

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