Ever since ObamaCare passed, the "death spiral" has hung over debates about health reform like some wonk prophecy of doom.
A death spiral occurs when a health insurer's pool of paying customers contains too many sick people. That drives up the insurer's costs, which then drives up customers' premiums, which then drives away customers. And since healthy customers are the ones most likely to risk going without insurance, the sick customers increase as a portion of the insurer's pool. And so the deadly cycle continues, until the insurer collapses.
ObamaCare tried to prevent death spirals by requiring insurers to offer everyone coverage no matter how sick they are, while simultaneously requiring everyone to buy coverage. The first part of that — the ban on denying coverage based on pre-existing conditions — saddled insurers with more sick customers. But the second part — ObamaCare's individual mandate — gave insurers more healthy customers to balance things out. The two rules require one another.
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The individual mandate, however, is arguably the most hated part of ObamaCare. And Republicans are really eager to get rid of it.
On Monday, the GOP released their ObamaCare replacement plan, the American Health Care Act (AHCA). Sure enough, the individual mandate's tax penalty is toast, while the rule against denying coverage because of pre-existing conditions remains in effect. So how is the AHCA going to avoid causing a death spiral?
Well, it may not. But it's going to try, using several different provisions.
The first is what's called the "continuous coverage" requirement. Americans will no longer pay a tax penalty simply for not having health insurance. But if they go more than 63 days without coverage of some sort, and then try to buy a new plan, the insurer can charge them a 30 percent additional fee on top of their premium for a full year. The idea is to incentivize people to stay covered, and not skip out when they're healthy and then buy back in when they're sick.
There are a few problems here. For one thing, people can easily lose their coverage through no fault of their own — for instance, if they're covered through their employer and then suddenly lose their job. On top of that, poor and working-class Americans are much more likely to lose their jobs in an economic downturn, and they'll have the toughest time buying their own plan in the 63-day window.
This brings us to the next provision, which is the refundable tax credits the AHCA offers to help people pay their premiums.
ObamaCare has a similar provision, but its subsidies phase out pretty quickly as households rise up the income ladder. This caused plenty of problems, since a lot of healthy middle-class Americans — who the system needs to buy insurance to keep ObamaCare's insurance markets stabilized — are simply going without coverage because premiums are unaffordable and their subsidies are skimpy. At the same time, ObamaCare's tax credits are actually very generous to poorer households and older insurance customers.
The AHCA has the opposite problem. Its tax credits give much more help to healthy middle-class people than ObamaCare does. But the AHCA's tax credits are also relatively stingy and the same flat rate for everyone — they're only adjusted slightly for age. That leaves poorer and older Americans in the lurch.
ObamaCare also requires that the premiums insurers charge old people could be at most three time as big as premiums for young people. The GOP wants to scrap that rule entirely. This would probably encourage young people (who tend to be healthier) to sign up. But it would also make coverage far more expensive for older people, who badly need the care. Vox's Sarah Kliff reported that "this particular policy would lower premiums for a 24-year-old from $2,800 to $2,100. But premiums for a 64-year-old would rise from $8,500 to $10,600."
Lastly, the AHCA includes funding for something called high-risk pools. These are separate insurance markets specifically for sick people with pre-existing conditions. ObamaCare had put those customers into the same insurance market as healthy people, while high-risk pools quarantine the sick people in their own market. High-risk pools avoid raising premiums for healthy people, but they also require really big subsidies to help sick people buy coverage. And the funding the Republicans propose in the AHCA isn't anywhere near enough to fund the high-risk pools properly.
Let's not forget the basic purpose of ObamaCare: Lots of Americans who badly needed health care either couldn't afford coverage or were actively denied coverage. ObamaCare is not perfect, but it made progress in solving both those problems. The Republican plan, meanwhile, opens up a bunch of new cracks in the health system through which poorer, sicker, and older Americans can be quietly pushed out of the health insurance markets.
That's how the GOP plan is trying to avoid a death spiral — by creating new versions of the problems that ObamaCare tried to solve.
