For a while last fall, it looked like the Obamacare health insurance exchanges were spinning towards a death spiral. Enrollment in the health insurance exchanges was not growing as rapidly as many people had hoped. United Healthcare, one of the nation’s largest insurers, announced that it intended to pull out of the exchanges soon, convinced that there are not good profits to be made in that marketplace. The company even decided to cut commissions for insurance agents who direct consumers to the exchange. Some experts warned that the exchanges are entering what policy wonks call a “death spiral,” whereby insurance premiums would rise each year, forcing relatively healthy people out of the market, causing premiums to rise again the next year, and so on.
With a few months of enrollment figures now behind us, it is safe to say that rumors of an Obamacare Death Spiral have been greatly exaggerated. While the health insurance exchanges still face many challenges, they appear to be holding steady, and with a few modest policy changes could transform into a robust marketplace.
The healthcare exchanges were established by Obamacare as places people can go to shop when they don’t receive insurance through their job or through the government. The exchanges are a major method through which the law expands the private health insurance market. But as new markets, they are risky places to do business. With employer-based insurance, insurance companies have had decades to figure out how to price their premiums. But with these new markets, they have been forced to base initial prices on their best guesses of how many people would sign up through the exchanges and, even more critically, of how sick those people would be. If only the sickest of the sick sign up, then premiums need to reflect the high cost of covering their predictably high healthcare needs.
New evidence is out showing just how sick those early enrollees were. But even more importantly, the evidence shows that with the passing of each month, new enrollees have been coming from healthier and healthier stock. If these trends continue, the price of premiums should soon settle into much more affordable territory, and the rise in premiums from year to year should become much less significant.
What evidence supports these conclusions? (To read the rest of this article, please visit Forbes.)