Health Economists On The Left And Right Are Predicting An Obamacare Death Spiral

By a News Reporter-Staff News Editor at Insurance Weekly News -- Princeton University health economist, Uwe Reinhardt, is generally viewed as a friend and supporter of the Obama administration's efforts to reform the health care system. But now he tells Vox.com that the health insurance exchanges have "entered a death spiral and are heading toward total collapse."

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That is the same assessment Obamacare critic John Goodman renders in an editorial at Forbes. "Obamacare is experiencing two kinds of death spirals: the upward spiral of price and the downward spiral of quality," he says.

Goodman, who heads the Goodman Institute for Public Policy Research in Dallas, says a death spiral exists if there is no premium the insurer can charge that will allow it to cover its costs. If it is experiencing losses, it may try to recover by raising the premium. But eventually there will be no one left in the pool other than the costliest enrollees -- who cannot possibly pay the premiums needed to cover the cost of their care. The insurer can avoid this painful process by cutting its losses and leaving the market early on.

A study by Avalere predicts that next year more than one-third of the exchanges will have only one insurer left. More than half the exchanges will have no more than two. "We were promised competition; what we are getting instead is monopoly," he said.

Both health economists point to a problem on the demand side of the market: too many people are waiting on the sidelines while they are healthy and signing up for insurance only after they get sick.

Reinhardt says that Switzerland and Germany have similar systems, relying on competition among private insurers. But the Swiss and the Germans "brutally enforce the mandate." They "make young people sign up and pay." "We are too chicken to do that," he says and adds, "We give them a mandate penalty that is lower than the premium. And we tell them, if you're really sick, we'll take care of you anyhow."

Goodman says an even bigger source of trouble is on the supply side. "Health plans are being allowed to dump their sickest, most costly enrollees on their rivals with impunity." As a result, "insurers face perverse incentives to attract the healthy and avoid the sick."

Keywords for this news article include: Goodman Institute.

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