Talking Point: The ACA is in a death spiral

Claim: Republicans claim that the Affordable Care Act is in a death spiral.

Rank: debatablePresident Donald Trump, Republican members of Congress, and reporters of conservative media outlets have noted that premiums under the Affordable Care Act (ACA, also known as ObamaCare) have been skyrocketing.  They are saying that declining enrollment for 2017, increased premiums, and insurers leaving are a sign that the ACA is in a death spiral.

In the insurance industry, the term “death spiral” has a specific meaning.  There are three components of a death spiral.  These components are: shrinking enrollment, healthy people leaving the system, and rising premiums.  This effectively means that when you have healthy people dropping insurance causing an overall reduction in enrollment, premiums increase.  As the premiums increase, more people will leave the system thus causing a cycle until the whole system fails.

In a speech, Trump pointed out that some states were seeing double and triple digit increases in premiums.  As an example, Arizona had an increase of 116%.  These numbers do not represent the entirety of plans that are affected.  These plans are ones that are found on the Federal insurance exchanges.

When talking about premium increases, the government uses the second lowest cost silver level plan for a 27-year-old person.  These costs are tracked at a county level.  Using this standard, it is possible to compare rates between years and different parts of the country.

Overall, the rates increased about 25% nationwide.  Some states had higher increases such as Arizona and a couple states had a decrease such as Indiana and Massachusetts.  The increases seen in 2016 were significantly higher than the previous two years (3% in 2015 and 7% in 2016).  These increases are also higher than those seen by those who get insurance through their employer (5-6%).

Experts believe that this increase is due to portions of the ACA that expired or did not work as expected and that it is a short-term correction.  Reinsurance and risk corridors were designed to keep the rates lower than what they would have been without the ACA.  As a result of these programs ending, premiums rose to reflect the true costs of providing the insurance.

Legislation passed by Congress hindered risk corridors by limiting how much the government can spend to protect insurance companies against financial losses.   Risk corridors, labeled as “taxpayer-funded bailouts” by Congressional Republicans, were intended to help some insurance companies that ended up with too many sick people on the rolls and not enough cash to cover medical bills.

In 2014, Marco Rubio and other members of Congress added a provision to a large spending bill.  Insurers had warned that eliminating the risk corridors part of the ACA would have the effect of making premiums higher, causing people to have to find other coverage, and causing some insurers to leave the market.  The legislative change resulted in a number of insurers shutting down due to the shortfall.  Twelve of 23 nonprofit insurance cooperatives have failed due to not receiving payments.

During the course of 2016, several insurers have left various markets.  They cited that they were losing money due to participating.  As a result, roughly a third of all counties (representing around 20% of all enrollees) in the country have only one option and in some cases, there is none.  This was a sudden increase from 2015 when only 7% of all counties had one option.

Enrollment in the exchanges have decreased for 2017.  Through January 31, there were around 12.2 million people enrolled, a decrease of 500,000 (4%) from 2016.  However, enrollments were in line with 2016 up to the middle of January.  More than half of new enrollees were due to the Medicaid expansion.

Experts believe that the decrease could have been the result of the change in presidential administration.  For example, the Trump administration halted marketing and outreach of ACA enrollment shortly after taking office.  They do not believe that this decrease in enrollment is causing premiums to increase.   Most of those enrolled in the exchanges are insulated from the premium increases as they receive subsidies and there has not been any upward trend of healthy people leaving.

Various groups have concluded that the ACA is stable and not in a death spiral.  These groups include the Congressional Budget Office and Center for Health Policy.  The Center for Health Policy stated that the premium increases had little influence on enrollment and absent of any other policy changes the ACA will be stable.

Aetna’s CEO, Mark Bertolini, claims that the ACA is in a death spiral.  He said that the risk pool is deteriorating and points to how poorly the funding mechanism and premium model is structured. For Aetna, the heaviest utilizers of healthcare (top 1-5%) are driving half of the costs.  He predicts that there will be a lot of markets without any coverage at all.

Rating

In order to say that the ACA is in a death spiral, there has to be three conditions that are true.  These conditions are people not enrolling, healthy people leaving the system, and premiums rising out of control.

Enrollment in the ACA in 2017 was down from 2016.  However, up until the middle of January, it was keeping pace with 2016.  It is plausible that the change in administration could account for the reduction in enrollment.  Plus, there is little evidence that healthy people are leaving the system. Even though premiums on the exchanges did see a spike for 2017, the underlying cause is likely to be a correction due to the risk corridors expiring and limited by Congress.

Based on these facts, the claim would probably be false.  However, Republican control of Washington DC complicates matters.  For example, Trump signed an executive order instructing his administration to minimize the impact of the ACA.  In response to this executive order is that the IRS will not be enforcing the insurance requirement.  It is possible that the death spiral talking point is going to be a self-fulfilling prophecy due to policy changes.  For this reason, the claim is being considered debatable.

References and Further Reading

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s