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Predictions of Obamacare 'death spiral' overblown

Conventional wisdom has held that getting young people to sign up is the key. But a new study says that's not the case after all.

By Money Staff Dec 19, 2013 1:39PM

This post comes from Yuval Rosenberg at partner site The Fiscal Times.


The Fiscal Times on MSN MoneyIf you’ve tracked the disastrous rollout of the website at all, you’ve heard repeatedly about the vital importance of young enrollees for the ultimate success or failure of Obamacare.


Injured man © image100, CorbisNow a policy brief released Tuesday by the Kaiser Family Foundation suggests that those “young invincibles” are not quite as important as the conventional wisdom holds – and that, even if they enroll at relatively low levels, it’s highly unlikely that they will set off an Obamacare “death spiral.” The Kaiser analysis finds that, even in a likely worst-case scenario, premiums would only go up 1 to 2 percent in 2015, nowhere near the kind of spike that could send the reform law snowballing toward failure.


The oft-repeated actuarial analysis behind that “death spiral” prediction goes like this: Obamacare imposes limits on how much more insurers can charge older policyholders relative to younger ones. That means the young enrollees will be subsidizing coverage for older ones. If young, healthy people don’t sign up in sizable enough numbers, insurers would be left with a pool of customers that is disproportionately older and sicker (read: more expensive).


The insurance companies would adjust by hiking premiums the next year, making their plans even less appealing to the healthier young group and increasing the likelihood that only those who most need coverage would sign up. As the cycle continued, it could destroy the individual insurance market and doom Obamacare.


The reality isn’t quite that simple, Kaiser Family Foundation analysts Larry Levitt, Gary Claxton and Anthony Damico explain.  Yes, they write, the age distribution across the entire market matters and the goal is to have young adults enroll in about the same proportion as they represent of the overall market of potential insurance buyers. 

Adults age 18 to 34 make up 40 percent of the market, so, ideally, they’d account for 40 percent of new enrollments -- that’s how the Obama administration got to its stated target of 2.7 million young enrollees, based on CBO projections that 7 million people would sign up for 2014.


The Kaiser analysis modeled out two scenarios in which young adults opt not to enroll to varying degrees. If adults under age 35 sign up for Obamacare at a 25 percent lower rate than the rest of the population, they would represent 33 percent of the individual market enrollees, not the 40 percent of the potential market they represent. The result, Kaiser reports, would be that insurers’ costs are about 1.1 percent higher than premium revenues.

The Fiscal Times / Kaiser Foundation

In the second scenario, young adults sign up at half the rate of the rest of the population, so that they represent just 25 percent of enrollees. That rate roughly matches the enrollment rates through November for young adults in California’s health care exchange, which reported that 21 percent of enrollees over the first two months of open enrollment were in the 18 to 34 age range.


The Kaiser analysts note that “this is likely a worst-case scenario, since the expectation is that older and sicker individuals are more likely to buy first and that younger and healthier people will tend to wait until towards the end of the open enrollment period.” Even so, they found that costs in this case would only be about 2.4 percent higher than revenues from premiums.


Insurers typically set their rates to deliver a profit margin of 3 percent to 4 percent, the Kaiser trio wrote, meaning that even under this worst-case scenario, they’d still make a slim profit. Even if they raised rates by 1 percent to 2 percent in 2015 to boost their margins, that increase “would be well below the level that would trigger a ‘death spiral,’” the authors wrote.


The Obamacare law also includes some other components that could ward off a death spiral, including government subsidies that rise along with premiums and thus dampen any price hike to consumers and so-called “risk corridors” that would have the government compensate insurers if costs exceed projected targets by more than 3 percent.


The bottom line, according to the Kaiser report, is that signing up young adults may be less important than it has been portrayed to be, and the real key will be to get relatively healthy people to buy plans: “It is important to attract the ‘young invincibles,’ but maybe with a greater focus on the ‘invincible’ part."


More from The Fiscal Times:


Dec 19, 2013 2:22PM
The entire term of this admin is a lie. Sorry,MSNBC, your bs is still bs.
Dec 19, 2013 2:35PM

HAHA it only took 13 minutes!


13 minutes is ALL IT TOOK for MSN to delete my comment yet again!!! So typical of them to delete anything that has a 4:1 thumbs up to thumbs down ratio when the comment is anti-Obama.


Getting desperate MSN?  No agenda pushing here is there?  Socialist pigs.

Dec 19, 2013 2:36PM
It's amazing how the Kaiser Foundation could get this so wrong.  If insurance carriers end up with a pool of business of older sickly folks without having younger "claim free" people, it will cause premiums to skyrocket.  The Obama Administrations knows this, just like they knew you couldn't keep your plan, just like they knew you wouldn't save $2,500 a year in health cost. They want premiums to skyrocket so they can push their "Universal Healthcare" single payer system on the American people. It's all part of the plan.  The Government will end up blaming insurance companies for skyrocketing premiums and then declare "this is why we need a single payer system."  Then our deficit will be 30 Trillion.  Hopefully the Government won't hire the same contractor that rolled out the website to do heart surgery.  How could anyone think this is good for America?
Dec 19, 2013 2:36PM
Do you know why the "Predictions of Obamacare 'death spiral' overblown"?  because you in the media is pushing it.   The 'obamacare' is the worst in the history.  It does nothing to help anyone except to put this god damn 1-payer system that that bastard of a president is shoving down our throat.  We don't need his crap.
Dec 19, 2013 2:21PM
The worst of has not even started yet,duh?
Dec 19, 2013 2:30PM

Sounds to me like the sheep herders are getting desperate.

Look for the health "care" law to very soon be absolutely mandatory for everyone (minus politicians, of course) regardless of whether or not one can afford his/her own health care. Everyone will have to pay for it, regardless...

I diagree with their opinion that without the young healthy folks, the Unaffordable Care Act will still manage fine, but only time will tell who's right. I am 40 and healthy. My policy will end in July. Why pay premiums and a huge deductible that are far in excess of the medical services I need? I'll just pay my way, when I need something done, and save big time. Fact: If you adjust your tax withholdings so that you don't get a refund, Obama cannot fine you for not having health insurance. The government cannot put a lien on your house or car, send you a bill, or garnish your wages. They can only take the fine out of your refund - IF you have a refund.
Dec 19, 2013 2:38PM
The good news is that 40% of the administration's goal has been signed up for Obama-care.  The bad news is only the shsyters that are getting on Medicaid and getting their healthcare for free are the ones that have signed up.
Dec 19, 2013 2:45PM
Minnesota State Exchange has signed up 44 people so far for Obamacare. LOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOLLOL!!!!!!  
Dec 19, 2013 2:46PM
I'm NOT buying into the Obama propaganda! No doubt with the mess he has created Americans will suffer huge consciences. Elderly American's will be placed on a waiting list  for needed life saving surgeries just all other socialistic healthcare programs are set up. Once a patient reaches a certain age, they are are placed behind younger patients in certain healthcare provisions and others who need other care will have to wait included seeing a doctor. Read about how Great Britain, Canada and any country that has a socialist healthcare system is set up. I saw on the news a cancer patient's chemo meds which cost $100,000 a year was being discontinued by her healthcare provider and she had only twenty pills left and could not afford them and without them she will die. Do you think Obama Care will pick up that tab.? Wait and see if they do and don't be surprised if they don't. That is a chance no one wants to take. As usual, the government is watering down the real truth. I don't believe much of what MSN reports.
Dec 19, 2013 2:58PM
Obama has told so many lies since first elected nobody with a working brain believes anything that spews forth from of his mouth....worst are his followers who either willingly or forced have supported him. That make them all liars and not fit for the duties of office in which they serve, period!
Dec 19, 2013 2:45PM
I have noticed with some interest how quiet the conversation is about the current status of the health care web site. I guess if you ignore it it will go away right MSN? Just like we have ignored the clear violations of personal freedom leveled at all of us since 9/11. We have traded the illusion of safety for the loss of freedom. I guess we deserve neither.
Dec 19, 2013 2:49PM
The biggest loss to America is the loss of freedom to choose to participate or not in mandated health care reform. We were promised if you like your health insurance you can keep it and your doctor. We were promised transparency and open dialogue with a clear review and an up or down vote before any changes were made. Has any of that happened? Nope you were forced to accept what the Congress thought was best for you and pay a higher premium and deductable for it. Yet so many don't have a problem with that. Why is that? Are we no longer the land of the free and the home of the brave?
Dec 19, 2013 2:54PM
Dec 19, 2013 2:40PM
Hey!  Yeah!  The servile media propaganda machine is in full gear now!  What is it like to be a fawning slave to this administration? That means only one thing - he is in trouble, big time.  Personally, I know he is (unknown sources, folks) so don't worry, it is actually is a matter of time.  Hey, Obama servant -  what are Obama's approval numbers?  Aren't they t in a tie with Richard Nixon at this moment?  Keep that propaganda going, folks.  Can't wait until the 2014 elections.  Maybe a new Republican Senate can keep his hands tied until 2016. We just  love all of you media types.  You are so predictable.  Hope you all get better jobs that on this website.  But, guess, when you have no talent, you have no place to go, right?
Dec 19, 2013 2:49PM
So many arrogantly ignorant Americans!  It use not to be so bad but that has slowly changed over the past 40 years.  No wonder the US falls further and further behind the rest of the developing world!  We have become a nation of mathematically challenged citizens that are  functionally illiterate and morally simple minded!
Dec 19, 2013 2:45PM




Dec 19, 2013 2:28PM
Who dun cares about Obamacare? Give mama som of dos McD's wings!
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