The Dreaded Obamacare Death Spiral Is Happening

Andy Slavitt, who ran the Centers for Medicare and Medicaid Services under President Obama, thought that he was really sticking it to Republicans.

“I talked today/last night to 5 health plan CEOs,” Slavitt tweeted. “Won’t use names but: 1 Blues, 1 integrated w hospital, 2 non-profit, 1 VC backed. All 5 health plan CEOs believe they prices 2017 #ACA business & should at least breakeven. Several of the plans beat their ACA membership projections.”

To paraphrase Daniel Moynihan, talk about defining success downward. It is, after all, not a success for insurers to “believe” that they properly priced their insurance products on the Obamacare exchanges. Nor is it a success that plans hope they can “break even.” Heck, it’s not even a success that plans are exceeding their membership projections, which were radically revised downward after years of poor performance.

Those shouldn’t be hope-fors in year four of the Obamacare experiment, they should be givens. Instead they’re far from it. Take, as an example, Humana’s decision this week to pull out of the Obamacare markets altogether.

“Humana has worked over the past several years to address market and programmatic challenges in order to keep coverage options available wherever it could offer a viable product. This has included pursuing business changes, such as modifying networks, restructuring product offerings, reducing the company’s geographic footprint and increasing premiums,” the company said in a press release explaining its decision.

“All of these actions were taken with the expectation that the company’s Individual Commercial business would stabilize to the point where the company could continue to participate in the program. However, based on its initial analysis of data associated with the company’s healthcare exchange membership following the 2017 open enrollment period, Humana is seeing further signs of an unbalanced risk pool. Therefore, the company has decided that it cannot continue to offer this coverage for 2018.”

Humana is far from alone in their concerns about the viability of Obamacare’s exchanges. Aetna CEO Mark Bertolini said at an event this week that Obamacare was “in a death spiral.

“What happens in a population that continues to get riskier and riskier is the rates chase the risk, you try to raise your rates high enough,” Bertolini explained. “Last year it was on average 27 percent. What happens is the people who are paying out of pocket for most of it leave because it is becoming too expensive.”

He also offered up two alarming predictions. “I think you will see a lot more withdrawals this year of plans” he told the audience. Adding later that his “anticipation will be that in ’18 we’ll see a lot of markets without any coverage at all.”

The problem is that insurers have no good options left. Young, healthy adults simply didn’t join the exchanges, in no small part because they were asked to overpay in order to subsidize older Americans. Once again, our generation—which is dealing with the worst job market in generations—was asked to pick up the tab for someone else. And this time, we just weren’t having it.

That decision, as Megan McArdle writes in Bloomberg, left insurers with few options:

Why not just raise the premiums? Because a pool comprising too many sick people can’t be stabilized at any price. Once you start jacking up the premiums to pay for all the pricey health care your members are using, you start losing your remaining healthy customers, and the premiums have to be jacked up still further. The result — the dread “death spiral” that Bertolini was talking about — will ultimately end up with premiums that no one is willing to pay, or can afford to. What Humana is saying (and Bertolini made similar remarks) is that they’ve got a pool that they simply don’t think can be sold into profitably, because the problem isn’t that they mispriced the premiums. The problem is that too few healthy people are buying insurance. And now that exchange enrollment has begun to shrink, it’s obvious that problem isn’t going to get better. It’s likely it’s going to get worse.

Fortunately, Republicans understand the sense of urgency and are working feverishly to clean up this Democrat-created mess.

“Assuming that the status quo can stay with Obamacare is wrong—it’s collapsing as we speak,” Speaker Paul Ryan said Wednesday. “So that’s one of the reasons why we’re doing Obamacare first, because we’ve got to rescue people from this collapse. And we feel an obligation to do that.”

Meanwhile, Andy Slavitt can likely be seen amongst the ruins of his former program yelling frantically, “Remain calm! All is well!”