Your LOL of the day: Vox’s Sarah Kliff wrote an article this morning that included many reassuring quotes from the chairman of the Council of Economic Advisors, Jason Furman, claiming that an “Affordable” Care Act (a.k.a. Obamacare) death spiral isn’t just unlikely but “impossible.” Leave aside just how unwise it is for Furman to say that kind of thing — let’s focus on the claim he makes.
“I think it is absolutely impossible for these markets to enter a death spiral,” Jason Furman, chairman of the White House’s Council of Economic Advisors, told Vox in an interview. “It is frankly crazy that people are leaping to the death spiral conversation.”
Furman argues that the double-digit premium increase is a one-time course correction — and one that won’t scare off healthy customers, given how many receive subsidies from the government to make their health insurance cheaper.
“There is no incentive for healthy people to leave the market,” Furman argued of those who receive the insurance subsidies.
I think we can all agree that it would be a relief if what Furman is saying was true — or if the condition for this claim to be correct wasn’t a gigantic federal bill.
He’s basically saying that most people in the exchanges are subsidized, so they’re not affected by the premium increases. That’s somewhat true, of course, for most of the customers in the exchange. But Furman is misleading us in trying to make us believe that this is the end of the story. It’s not.
First, as Kliff herself notes, some of these customers may be protected from the premium increases if and only if they change health plans — again. She writes:
So even though premiums are rising, on average, 22 percent, the majority of Obamacare enrollees have subsidies that create these types of caps. These people should be insulated from premium hikes, although they might need to switch to a new health insurance plan that is less expensive than their current coverage.
In other words, many customers will have to move to plans with less coverage. That’s nothing to brag about.
Also, one of the recurring problems with the ACA is that it is not attracting enough young and healthy customers. The ACA suffers from a serious enrollment problem. The numbers are lower than projected and the enrollees are older and sicker than the program requires in order to be sustainable for insurers. As my colleague Brian Blase reported a few months ago:
Enrollment of younger, relatively healthy people with a middle class income is particularly low and has left risk pools filled with older and poorer people with more expensive health conditions
The design of the ACA’s financial support is likely the reason that the only people buying exchange plans in large numbers are those whose incomes fall below 200% of the federal poverty level (FPL) — an amount equal to roughly $23,760 for a single person and $48,600 for a family of four. People earning below that level qualify for tax credits that significantly reduce their premiums and subsidies that substantially lower deductibles and other types of cost-sharing.
Adding insult to injury, the exchanges are generally only attracting heavily subsidized enrollees. That’s because people who qualify for tax credits are generally not purchasing the coverage unless they also qualify for the large subsidies that reduce their deductibles.
So Furman is arguing that under the best-case scenario the current problem will simply perpetuate itself. What an accomplishment!
Even Kliff doesn’t seem too sure about Furman’s statement:
At the same time, the unsubsidized market is relatively substantial. It includes both a few million people in the marketplaces and an estimated 7 to 12 million who buy their own coverage outside of the government website. There is very little information about how much these people earn and whether they tend to be healthy or sick.
But what’s important to know is that the rates inside and outside the federal marketplace have to be exactly the same. So if there is an exodus of healthy people from outside the marketplace, that could potentially be worrisome for the marketplace’s sustainability.
Insurance companies aren’t as optimistic as Furman. Aetna CEO Mark Bertolini told Bloomberg:
“As the rates rise, the healthier people pull out because the out-of-pocket costs aren’t worth it,” Bertolini said at Bloomberg’s The Year Ahead Summit in New York. “Young people can do the math. Gas for the car, beer on Fridays and Saturdays, health insurance.”
Premiums for health plans sold to individuals under the ACA, known as Obamacare, are going up by about 25 percent on average for next year. Bertolini said that as costs rise, more individuals will decide not to buy health plans. That’ll push premiums even higher, unless a new president and lawmakers can find fixes for the new markets created by the 2010 health law.
“What happens is the population gets sicker and sicker and sicker and sicker,” Bertolini said. “The rates keep rising to try and catch it. It’s a fruitless chase, and ultimately you end up with a very bad pool of risk.”
And that’s how you get the supply-side aspect of the ACA death spiral. One-third of counties only have a single insurer offering coverage through an exchange. Without even discussing how the lack of choice sucks for consumers who are in these markets, it also means that — despite the subsidies — the death spiral is occurring as insurers realize the economics of the ACA only work for them if they receive large back-end subsidies or bailouts. And if they don’t, how long will they stick around?
In reality, though, do you know who is facing a death spiral? U.S. taxpayers. Furman is effectively arguing that the taxpayer will pick up the tab. If premiums skyrocket but most people remain subsidized, the taxpayer picks up the extra costs through the costs of the tax credits. This is a real worry since the low number of enrollees means that premiums and subsidies would have to be raised much higher before we hit the subsidy cap in the law. So basically Furman is only “right” if Obamacare becomes a huge drain on the federal budget.
That would be the last straw in making a mockery of previous representations that the ACA would have minimal budget effects.