Blog PostSeptember 30, 2013

Affordable Care Act Death Spiral Looms

ACA success or failure depends on who signs up

The paint on the “open for business” sign is nearly dry for the federal Affordable Care Act’s hallmark provision – health insurance exchanges which officially go online October 1. We know this because the political debate about it in Washington has heated up to thermonuclear levels. We also know this because several national media outlets have offered simplistic Q&A-type lessons to explain the law like the Wall Street Journal’s “What Does (the) New Health Law Mean for Me?” and USA Today helpfully tells us in Step-by-Step fashion, “Here’s What to Do”.

This information is unquestionably important for consumers who are now forced to navigate this health care quagmire. But it is even more important to understand the mechanisms in place that will purportedly pay for this quagmire – and unfortunately the Q&A offerings in this area are slim.

One exception is in this NPR piece, “One Key Thing No One Knows about Obamacare”. The story talks about a frightening possibility that could knock out the bottom card in an already unsteady house of cards – not enough healthy people buying health insurance:

“The danger if you don’t get young, healthy people signing up … is that this program will collapse,” says Robert Laszewski, president of Health Policy and Strategy Associates.

“We actually have a term for this in the industry,” says Laszewski, who advises health insurance companies. “We call it a death spiral. And many insurance companies have had death spirals so this is not a theoretical exercise.”

“Here’s how a death spiral happens: Most of the people who sign up for an insurance plan are sick. It costs a lot to take care of them. So the next year, to cover the high health costs, the insurance company raises its premiums. But then only really sick people sign up. So the insurance company has to raise prices again. Eventually, the insurance gets so expensive that no one buys it, and the whole system falls apart.”

Job Creators Network has gone even further with this video to explain how the ACA system is set up and who will pay for it. While the consumer end is certainly vital, it is critical that consumers understand the means being used to reach their health coverage end.