Princeton health economist: We're now seeing a 'mild version' of the Obamacare death spiral

It has been a tough week for Obamacare. Voices warning the law is in trouble are beginning to break through the echo chamber of good news usually maintained by the law’s supporters.

Tuesday I highlighted a statement by the Tennessee Insurance Commissioner who warned that the exchange in that state was “very near collapse.” Wednesday I noted a professor at Texas A & M’s School of Public Health told the Texas Tribune, “We may be beginning to see the death spiral of insurance plans in the exchanges.”

Today, Vox reporter Sarah Kliff published her interview with Princeton health economist Uwe Reinhardt. Kliff prefaces the interview by saying Reinhardt offered “the most dire and pessimistic assessment of the marketplaces’ future” of anyone she had spoken to recently. Still, as this week has show, negative views of the law seem to be more common than they were even a few months ago. From Vox:

SK: So what happens in a system like this? Does it eventually right itself, or does it fall apart?

UR: Liberals think this will settle itself. Eventually, though, we all know about the death spiral that actuaries worry about, and I think what you’re seeing now is a mild version of that. These things accelerate, as premiums keep rising.

We’ve had two actual death spirals: in New Jersey and in New York. New Jersey passed a law that had community rating but no mandate, so that market shrank quickly and premiums were off the wall. You look at New York and the same thing happened; they had premiums above $6,000 per month. The death spiral killed those markets.

What we do have in the Affordable Care Act is the mandate, so it will be a slower process. If the premium increases go through for 2017, some are 8 or 9 percent, and that is stiff. If those rates get improved, those are big enough that a lot of people will drop out.

I’m guessing here but I wonder if Reinhardt actually said “if those rates get approved” rather than “improved.” In any case, it’s clear what he means. Higher rates are going to drive people out, despite the mandate.

The requested premium increase from all insurers nationwide is around 24 percent, though that assumes everyone just renews the same plan. In reality, many people will shop for a new, cheaper plan to try to minimize the rate hikes. But even so, as Reinhardt points out, they are going to see an increase over last year and probably a large one.

Vox points out that most people currently buying Obamacare plans won’t see most of that increase thanks to subsidies. That’s true but it doesn’t shield those who aren’t eligible for the subsides. It also doesn’t shield taxpayers who have to cover the additional cost for the people who do get the subsidies. One way or another, a jump in rates is not good news for Obamacare.

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