Premiums throughout ObamaCare’s insurance exchanges are indeed anticipated to spike 22 percent this year. Several insurance providers pulled out of the exchanges because they couldn’t find enough customers to make their business models work.
Is this the start of the dreaded “death spiral”? To function financially, insurers need lots of healthy customers paying premiums. Without them, insurers can’t cover their sick customers, whose costs of care vastly exceed their premiums. But ObamaCare’s penalties for not buying insurance were never that strong, and its subsidies to encourage people to buy insurance were never that generous. If insurers can’t get enough healthy customers, they have to raise premiums. That discourages even more healthy people from signing up, so the sick people grow as a portion of insurers’ customer base, and premiums rise again. The spiral goes on until the insurers collapse or abandon the market.
So it’s not crazy to assume ObamaCare’s death spiral has commenced.
But there’s another possibility. ObamaCare’s insurance exchanges are still young, and providing health insurance to a new population is a learning process. You have to guess how many people will sign up, how many will be sick, and what their costs will be. Then you set your premiums accordingly, and find out if you guessed right. If not, you adjust your premiums. In a new market, there’s also a lot of jockeying for position and market share — so you get insurers trying to undercut each other with unusually low initial premiums.