Insurance death spirals occur when regulators force insurers to offer coverage (“guaranteed issue”) at premiums below the known risk of those they are insuring, without any assurance that the shortfall can be made up elsewhere. When insurers comply with these rules and offer relatively low cost health insurance policies to all comers, quite predictably, many sick people step forward to sign up. When the insurers then try to turn around and charge higher premiums to the relatively healthy to cover their costs, the healthy, also quite predictably, are more reluctant to enroll because they can see the premiums they would have to pay would very likely exceed their health-care costs. So they often say “no thanks” to the insurance and decide to take their chances by going without coverage instead. As more and more healthy people exit the marketplace, insurers are then forced to raise premiums for everyone who remains, which only further encourages the lower risks to opt out. This vicious cycle of rising premiums and an increasingly unhealthy risk pool is called a ‘death spiral’ because it eventually forces the insurer to terminate the plan…

The Obama White House and congressional Democrats convinced themselves months ago that they could avoid the fate of these failed state reform efforts by forcing the young and healthy to buy insurance, whether they wanted it or not. And so, all of the bills under consideration in the House and Senate would make government-approved health insurance enrollment compulsory for all Americans. Those not complying would have to pay a new tax, collected by the IRS.

But the assumption that Congress would be able to hold the line and permanently sustain a punitive new tax on Americans for not buying government-approved insurance was always dubious.