BEYOND THE NUMBERS
House Speaker Paul Ryan is justifying congressional Republicans’ plan to repeal much of the Affordable Care Act (ACA) by falsely claiming that the ACA has caused a "death spiral" in the individual insurance market. To be clear, it’s the GOP repeal plan — not the ACA — that would cause nearly 30 million people to become uninsured and unravel states' individual insurance markets.
A death spiral occurs when premiums in an insurance market rise enough that healthier people drop their coverage, leaving enrollees in that market sicker, on average, which in turn prompts insurers to raise premiums further to cover their higher costs. As premiums keep rising, more healthy people flee the market, and the market eventually collapses.
That’s clearly not happening in the individual insurance market now, as a new report from the Council of Economic Advisers (CEA) shows.
- Enrollment is rising. Enrollment in the individual market (including within the ACA marketplaces) has grown each year since the ACA took full effect in 2014, reaching an estimated 18 million people in early 2016, compared to about 11 million in 2013.
- Premium increases aren’t prompting more people to drop coverage. There was “essentially no difference” in enrollment growth between states with larger premium increases in “benchmark” plans in 2015 and those with smaller increases, the CEA found. (A benchmark plan is the second-lowest-cost “silver” plan available in the area.) Similarly, counties with larger increases in benchmark premiums in 2016 had slightly higher marketplace enrollment than other counties.
- The pool of people in the individual market seems to be getting healthier, not sicker. Average medical spending per enrollee in plans that comply with all ACA rules fell slightly in 2015, an analysis by the Centers for Medicare & Medicaid Services found. Another recent study found a similar trend. That medical spending fell even as medical costs continued rising suggests that enrollees’ average health status has improved.
ACA has important protections against a death spiral. The individual mandate requires people to have health coverage or pay a penalty. Also, the subsidies for marketplace coverage, which rise as premiums rise, ensure that eligible people pay no more than a set percentage of their income toward the premium of a benchmark plan. That encourages healthy people to keep marketplace coverage even when premiums go up.
Because roughly two-thirds of individual-market enrollees are eligible for marketplace subsidies, the subsidies are a powerful enough market stabilizer that “a death spiral can never occur in this market,” the CEA report explains.
By contrast, eliminating the individual mandate immediately and the marketplace subsidies after two years or more, which the Republican ACA repeal plan would do, would encourage healthier people to begin dropping their coverage. Insurers would suffer financial losses and withdraw from the market entirely or hike premiums dramatically, making the pool of those with coverage even sicker and costlier to cover. In just two years, the individual market would essentially disappear, with enrollment falling by 92 percent by 2019, the Urban Institute estimates.