Is healthcare law really going into a ‘death spiral’?

Is healthcare law really going into a ‘death spiral’?
© Greg Nash

It’s a central part of the GOP argument against ObamaCare: The Affordable Care Act is in a “death spiral” and on the verge of collapse, Speaker Paul RyanPaul RyanThe Hill Interview: Budget Chair Black sticks around for now Gun proposal picks up GOP support GOP lawmaker Tim Murphy to retire at end of term MORE (R-Wis.) and other Republicans argue.

Congress must act now to repeal and replace the law, the Speaker argues, because the system is already collapsing.

“You have to remember the law is in what the actuaries tell us [is] a death spiral,” Ryan said at a press conference this month. “So we’ve got to intervene to prevent this from getting worse.” 

If the healthcare law is in a death spiral, it increases the need to repeal and replace it, since it suggests that health insurance markets will collapse without government action. That’s why it is a key argument for Republicans. 

Yet non-partisan healthcare groups that have studied the law say that while it has some serious problems and faces challenges, they do not see it as collapsing into a death spiral.

The American Academy of Actuaries is a prime example.

The group, which represents the people who analyze data for insurance companies, says there is no evidence that ObamaCare is in a death spiral or that it is on the verge of collapse.

“I don’t really see evidence of that happening right now,” said Cori Uccello, the organization’s senior health fellow.

 The idea is that rising premiums are making it more likely that healthy people will drop their coverage, despite the mandate for keeping insurance.

 That will in turn cause a further spike in premiums, as insurers would be forced to cover a sicker group of enrollees.

Under the death spiral scenario, the healthcare system then falls victim to a vicious cycle in which more and more healthy people drop out, causing premiums to rise and rise until insurers pull out of the market entirely.

The problem with the argument, according to Uccello, is that ObamaCare’s enrollment is actually holding steady and not dropping off.

The latest administration figures show 8.8 million people have signed up for 2017 coverage, slightly higher than the 8.7 million at the same point last year.

“Enrollment seems to be holding fairly steady, as well as the age distribution,” Uccello said. “These things are not indicative of a premium spiral.”

Premiums did increase sharply, with an average rise of 25 percent for coverage in 2017.

But a report from analysts at Standard & Poor’s in December found that 2017 was a “one-time pricing correction” and premium increases for 2018 would be “well below” that amount.

“Obviously, 2016 is not a death spiral,” said Deep Banerjee, an S&P analyst and one of the authors of the report. “We don’t think 2017 will be a death spiral either.”

A majority of those on ObamaCare — 85 percent — receive subsidies to help pay for their premiums. As a result, those people don’t have to pay much if any of the rise in their premiums, though the cost for the federal government would go up.

“The way that current federal premium subsidies are set up, they largely would protect the market from heading into a death spiral for the subsidized population,” said Erica Coe, a partner in the healthcare practice at McKinsey & Company.

It’s not that the healthcare law doesn’t have problems.

In addition to rising premiums, Ryan and other Republicans have pointed out that several large insurers dropped out of ObamaCare markets last year because of financial losses.

The Kaiser Family Foundation finds that 32 percent of counties will have just one insurer offering ObamaCare coverage in 2017, compared to seven percent of counties in 2016.

But those problems are different from saying the law is collapsing in a death spiral.

Democrats argue that improvements could be made to fix issues like a lack of competition in some areas. They want a government-run “public option” to increase competition and more financial assistance to make insurance more affordable.

Ryan and other Republican leaders have pointed to the death spiral argument to justify their push to repeal the law.

When a cancer survivor who credited his life to ObamaCare asked Ryan at a CNN town hall this month why he wanted to repeal the law, Ryan responded in part by saying the status quo is unsustainable.

“The problem with ObamaCare: the actuaries call it a death spiral,” Ryan said in his response to the man. He also argued there are better ways to help people with pre-existing conditions, like high-risk pools.  

He then added: “We have to step in and rescue people from the collapse of this law.”

Many insurers have indeed been losing money in the ObamaCare markets, and some have dropped out altogether, reducing choices for people. But the S&P report found that the situation is improving, not getting worse. More insurers will report profits in 2017, the report found, and another year or two of improvements will lead to more reaching their financial targets.

“It still isn’t a profitable line of business for most insurers, but what this indicates is that there is a way to make this work,” Banerjee said.

Some analysts think Republican repeal efforts actually could make things worse.

Uccello, for example, warned that repealing the mandate could actually bring about a death spiral, since the Congressional Budget Office has estimated that it could raise premiums by 20 percent.  

She also noted that uncertainty around what Congress will do could hurt the market.

“Uncertainty is not something that bodes well,” she said. “Insurers need to know what’s going on.”