Obamacare Premiums are On the Brink of a Death Spiral

In spite of its name, the Affordable Care Act, has led to health insurance plans that are anything but affordable. New data suggests that consumers can expect to see enormous rate hikes for the supposedly mid-priced “Silver” plans, which are used as the benchmarks for premium subsidies. These year-over-year increases could begin to tip the market towards a death spiral that could further threaten the stability of the bill.

One of the reports, released by consulting firm Avalere predicts that Silver plans will increase by an average of 34 percent, an amount that would have significant financial implications for the average family.

“Plans are raising premiums in 2018 to account for market uncertainty and the federal government’s failure to pay for cost-sharing reductions,” said Caroline Pearson, senior vice president at Avalere. “These premium increases may allow insurers to remain in the market and enrollees in all regions to have access to coverage.”

The consulting firm listed a range of factors that led to the significant increase in premium prices: a year-over-year decrease in enrollment, limited insurer participation and competition, and policy uncertainty.

Despite the myriad factors, the elimination of cost-sharing reductions has received the most attention. Under the Affordable Care Act insurers are required to sell Silver plans to lower-income workers (under 250 percent of the poverty line) special policies with lower out-of-pocket costs. The problem was that Democrats, in an attempt to hide the true cost of the bill and pave the way for its passage, neglected to provide a funding stream to pay insurers for the subsidy. Unsurprisingly, the Obama administration used some extra-legal means to keep the money flowing to insurers anyway, but President Trump returned to the rule of law and nixed the subsidies until Congress makes a legislative change.

Democrats’ short-sightedness now means that insurers are forced to offer certain consumers policies with artificially low out-of-pocket costs, which means that their only avenue to achieve sustainability it to pass the costs onto others by raising the price of Silver plans.

Still, according to Avalere this only represents about 14 percent out of the 34 percent increase, meaning that even without the shift in policy, insurance prices were set to skyrocket. A bigger problem is continued reductions in the number of Americans enrolled, a sign that many Americans are increasingly unable to afford Obamacare policies, and a destabilizing factor for insurers who cannot count on a stable risk pool. According to data from S&P Global, participation in the exchange next year is expected to fall by 7 to 13 percent.

Especially worrisome is continued reductions in participation among young adults, who are relatively cheap to insure and therefore tend to subsidize the costs of riskier market segments.

Plunging enrollment and further reductions in the number of available plans could lead to dramatic premium hikes again next year. This year, the average monthly premium for a 27-year-old will rise to $411 a month, up from $300 this year. Those types of increases often lead young adults to make the financial choice to go uninsured and pay the tax penalty rather than fork over ever-increasing amounts of money for care they may not need.

That’s a significant problem, and one that Democrats told the American people would be solved by Obamacare. But, as Chris Connover writes for Forbes, the reality has been the exact opposite:

The bottom line is that whatever else you can say about what Obamacare achieved on the coverage front, it manifestly has not done anything to slow the steady rise of employer health insurance premiums vis-a-vis wages. If anything, this misguided law somewhat aggravated matters. And informed readers are presumably well aware that in the non-group market, results were considerably more disastrous insofar as they have resulted in a doubling of average premiums on the Obamacare exchanges between 2013 and 2017.

In short, rising health costs were a  problem before Obamacare and that problem continues to persist despite an enormously expensive law purportedly designed to fix it. 

This problem can’t go on forever. At some point, the individual market will tip into a death spiral in which ever-larger numbers of Americans realize it makes little financial sense for them to purchase coverage. As they drop out and the risk pool becomes sicker and more expensive Obamacare will have completed its self-immolation. The coverage gains of the first few years will have given way to a broken system that doesn’t work for anyone.