Wonkbook: Seven Reasons Obamacare Isn’t Facing a “Death Spiral”

[Hissyspit]

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/11/07/wonkbook-seven-reasons-obamacare-isnt-facing-a-death-spiral

Wonkbook: Seven reasons Obamacare isn’t facing a “death spiral”

By Ezra Klein and Evan Soltas, Published: November 7 at 8:42 am

No one is quite sure how bad HealthCare.gov's problems are. The result is no one is quite sure what Obamacare's "worst-case scenario" is. But in some corners of the media, a grisly consensus is emerging: It's a "death spiral."

"Is Obamacare in a death spiral?" asks Megan McArdle.

"The death spiral is already beginning," warns David Frum.

No, it isn't.

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The key to a "death spiral" is the "spiral" part. Once it reaches a certain point, it becomes self-reinforcing -- and almost impossible to stop. Could that really happen to Obamacare?

Probably not. Obamacare is protected from an actual death spiral by interlocking fail-safes. Some kick in if not enough healthy people sign up. Others give healthy people reasons to sign up. Others make sure insurers don't raise premiums too fast. But together, they offer substantial protection against an actual death spiral.

1. Tax subsidies. Obamacare pumps more than a trillion dollars to subsidize lower-income people in the insurance exchanges. That's a lot of money. And, crucially, the subsidies are tied to the cost of the insurance plans. As premiums rise, so too do the subsidies.

"The tax credits are a huge piece of death spiral prevention here," Levitt says. "At least half, probably 60 percent, of the people in the exchanges will get tax credits. The risk of higher premiums is more on the federal government than it is on people."

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2. The insurers. The theory of the "death spiral" goes like this: Insurers see that the people signing up for insurance are older and sicker than they thought. So they sharply raise premiums in 2014 to make sure they don't lose money. Those higher premiums drive young people out. And so the spiral begins.

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5. The individual mandate. The reason the Obama administration is so dead-set against delaying the individual mandate is that it's a key fail-safe against a death spiral.

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