New double-digit Obamacare rate hikes have fueled speculations that the health care law could enter a “death spiral”: Healthy people might leave the market, leaving only the sick behind and driving premiums ever higher.
But the White House’s top economist says a death spiral isn’t just unlikely — he argues that it is actually “impossible” for the Obamacare markets to fall apart in this way.
“I think it is absolutely impossible for these markets to enter a death spiral,” Jason Furman, chair of the White House’s Council of Economic Advisers, told Vox in an interview. “It is frankly crazy that people are leaping to the death spiral conversation.”
Furman argues that the double-digit premium increase is a one-time course correction — and one that won’t scare off healthy customers, given how many receive subsidies from the government to make their health insurance cheaper.
“There is no incentive for healthy people to leave the market,” he argued of those who receive the insurance subsidies.
Why the White House thinks subsidies will prevent a death spiral
To understand Furman’s argument, you need to understand how the health care law’s subsidies work.
Obamacare provides insurance subsidies to low- and middle-income Americans who purchase coverage on the marketplace. These subsidies cap how much a customer would have to spend, as a percentage of their income, to get a midlevel plan.
So even though premiums are rising, on average, 22 percent, the majority of Obamacare enrollees have subsidies that create these types of caps. These people should be insulated from premium hikes, although they might need to switch to a new health insurance plan that is less expensive than their current coverage.
There are people who don’t get subsidies, but they make up a smaller fraction of the marketplace — about 15 to 17 percent. So Furman’s argument is that the markets can remain stable even if some of those folks leave, because so many people who receive subsidies are likely to stay.
“When you have 84 percent in the marketplace subsidized — or two-thirds if you include the whole individual market — that effectively arrests the death spiral, that effectively prevents it,” he says.
Whether this is actually the case is hard to know given that we’ve never had an insurance expansion quite like the Affordable Care Act. Furman is right that the Obamacare marketplaces are heavily subsidized — and that those subsidies do a lot to cushion the blow of double-digit rate increases.
At the same time, the unsubsidized market is relatively substantial. It includes both a few million people in the marketplaces and an estimated 7 million to 12 million who buy their own coverage outside of the government website. There is very little information about how much these people earn and whether they tend to be healthy or sick.
But what’s important to know is that the rates inside and outside the federal marketplace have to be exactly the same. So if there is an exodus of healthy people from the marketplace, that could potentially be worrisome for its sustainability.
“Some are sick and are going to hang on to their insurance for dear life,” Larry Levitt, senior vice president for special projects at the Kaiser Family Foundation, told me in a recent interview. “But the group you worry about is people who are healthy, who are buying insurance because they think it’s the right thing to do.”
You can read the full interview with Jason Furman here.