A nightmare for Affordable Care Act supporters has been the possibility that only the sick would be left to purchase insurance through its exchanges, driving premiums up and insurers out. While the law’s boosters have been quick to dismiss the possibility that such a so-called death spiral could occur, data published in the Wall Street Journal suggest that this chain of events may not be so far-fetched after all.
The findings are significant not just for what they say about how Obamacare is working now, but also for their impact on the political debate over its future.
At its base, the data show that people insured through the law’s exchanges have higher rates of serious medical conditions. Of the enrollees who have seen a doctor or other health-care provider in the first quarter of this year, 27 percent have significant medical problems, including diabetes, cancer, heart trouble and psychiatric conditions. That rate is substantially higher than that for patients in nonexchange market plans over the same period. And it’s more than double the rate of those who were able to hold onto their existing individual market insurance plans after President Barack Obama was forced to allow them to keep them.
This outcome should not surprise anyone. The law’s one-size-fits-all regulatory regime, which requires insurers to offer coverage to all comers and prohibits pricing of coverage based on an applicant’s health status, was bound to increase the number of relatively sicker people purchasing insurance through the exchanges. Moreover, Obama’s executive action, which effectively allowed many people who had individual market plans to remain in them through at least 2016, bifurcated the insurance markets such that healthier people remained in the plans they already had, while relatively sicker patients were left to acquire coverage through the Affordable Care Act’s exchanges.
Some of the bad risk in the exchanges has been offset by the enrollment of relatively healthy people who acquired coverage because of the law’s generous subsidies. Yet the numbers make clear that the exchanges remain a haven for those who may consume more medical services than others.
The data portend a vigorous debate over the “risk corridors” program, which is one of three mechanisms in the law designed to give insurers incentives to continue to participate in its exchanges even if they are at risk of significant financial losses. Some Republicans, particularly Sens. Marco Rubio, of Florida, and Jeff Sessions, of Alabama, and Rep. Fred Upton, of Michigan, have decried this program as an insurer bailout.
The premise behind the risk corridors is that the financial winners in the Obamacare exchanges would compensate the financial losers such that the flow of money would make the system self-sustaining. What may not have been anticipated was what would occur if the financial losers (the sicker enrollees) far outpaced the financial winners (the healthier ones).
The Obama administration recently issued regulatory guidance suggesting that if the program wasn’t solvent, billions of dollars in funds appropriated for other purposes could be used to make the program whole. But the nonpartisan Congressional Research Service has made clear that this diversion of funds is impermissible under existing law. Meanwhile, Rubio, Sessions, Upton and others have called for legislation to ensure the risk-corridors program will remain budget-neutral and not place taxpayers at financial risk.
This debate will become more vociferous in the period before the midterm elections in November. The chance that the risk-corridor arrangement won’t be entirely self-financed puts vulnerable Democrats, who are already facing strong headwinds created by Obamacare, in an even more precarious position.
Finally, and notwithstanding the risk-corridor issue, the data suggest that insurers will respond to having to cover more people who are relatively sicker by raising premiums in 2015 and beyond. As Chet Burrell, the chief executive officer of CareFirst BlueCross BlueShield, concluded, “Over a period of time, the rates have to go up to catch up with the reality of who enrolled.” If that reality didn’t look good for Obamacare in 2014, it isn’t likely to improve in 2015, either.
So while Obamacare’s exchanges are still some distance from a death spiral, it’s pretty clear that the path ahead for the law — and for the politicians whose fortunes may turn on its success or failure — is fraught with peril in the months and years ahead.
Bloomberg View columnist Lanhee Chen, a research fellow at the Hoover Institution who also teaches public policy at Stanford University, was the policy director of Mitt Romney's 2012 presidential campaign.