As problems continue to plague the rollout of President Obama's health care law despite improvements to the federal healthcare.gov website, one issue that continues to loom is the possibility of the dreaded “death spiral.”
The term “death spiral” refers to an unraveling of the individual market if insurers are stuck with a disproportionate number of older and sicker enrollees with high medical claims without a sufficient number of younger and healthier participants to offset the costs.
Though the Department of Health and Human Services hasn't yet released a demographic breakdown of those who have picked a plan through Obamacare, early data from a handful of states has suggested that the risk pool has been disproportionately older.
But what’s been largely lost in the ongoing discussion about whether a death spiral can happen is that there isn’t one Obamacare “risk pool” and thus, there isn’t one potential “death spiral.” In reality, there are 51 different risk pools (for each state plus the District of Columbia), which means 51 chances to get things right, as well as 51 possible death spirals.
It's perfectly possible that come March 31 - the current end of the open enrollment period - evidence will show a bit of both. That is, some exchanges may be viable, and some may find themselves in deep trouble. This could not only have implications for the 2014 elections, but it could affect how both parties approach health care policy.
There is already evidence that this scenario is playing out. HHS data on Obamacare signups for October and November, the first two months of the exchanges' operation, shows a wide disparity in signups among the states.
California and New York were responsible for 42 percent of signups despite accounting for around 19 percent of the nation's population. Kentucky had roughly twice as many signups as Michigan, even though the Wolverine State has more than double the number of residents.
Eleven states had fewer than 1,000 signups apiece. The worst-performing state, Oregon, signed up just 44 people despite spending more than $300 million building and promoting its exchange. Meanwhile, just eight states had more than 10,000 residents sign up.
Though data has dribbled out suggesting a more robust pace of signups in December, Obamacare still has a long way to go to reach original projections of 3.3 million enrollments by Dec. 31 and 7 million by March 31.
It’s true that a low number of enrollments doesn’t necessarily spell doom. But if the final numbers are weak, the lower the odds are that there will be a critical mass of young and healthy participants in all 50 states and the District of Columbia to support a wide variety of plans.
Timothy Jost, a professor at the Washington and Lee University School of Law and a staunch supporter of Obamacare, published a paper with the liberal Commonwealth Fund in July 2010, emphasizing why it was important for exchanges to have enough participants.
“Small insurance pools, being potentially volatile and susceptible to destabilization by large claims, are problematic for insurers,” Jost wrote. “According to one expert view, a risk pool of at least 100,000 covered lives would probably be necessary to be viable.”
Though he went on to write that the size issue could be mitigated by other reforms in Obamacare, he also noted a smaller pool is less likely to attract as many health care plans and makes it harder to spread out administrative costs.
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.
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.
This could produce a result under which Obamacare remains the law of the land, but states are given more flexibility, even the ability to opt out of the program.