Rumors of Obamacare's Death (Spiral) Are Greatly Exaggerated

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OBAMACARE JANUARY 29, 2014

Rumors of Obamacare's Death (Spiral) Are Greatly Exaggerated

In the world of Obamacare hate, the law’s failure is imminent and inevitable. Only old and sick people are signing up, the thinking goes. Eventually insurers will have to raise rates, causing what’s known as an insurance “death spiral” as more young and healthy people flee. “Obamacare will fall on its own,” Republican Congressman Louie Gohmert famously predicted, before noting that the Soviet Union was similarly “destined to fail.”

Could Obamacare enrollment really go so awry? Sure. But some news from Wednesday is one more sign that such a crisis is unlikely.

The news came from Wellpoint, one of the nation’s largest insurers and one of the most active in offering coverage through the new Obamacare marketplaces. During a conference call with investors on Wednesday—summarized nicely by J.K. Wall of the Indianapolis Business Journal and Alex Nussbaum of Bloomberg News—Wellpoint officials announced that enrollment in their health plans was meeting expectations. They had acquired more than 400,000 new customers already and expected to have close to a million by the time Obamacare’s open enrollment period ends, on the final day of March.

But what matters more than the volume is the makeup. Statistics from the Department of Health and Human Services, released earlier this month, showed that the people signing up for health plans through the exchanges tended to be older than the eligible population as a whole—a sign that, overall, the plans were attracting lots of people who would have high medical bills, undermining the new system’s actuarial balance, triggering “risk corridor” payments from the government and forcing carriers to raise prices next year.

Wellpoint on Wednesday confirmed that its new customers were older than the population as a whole. But, officials went on to say, Wellpoint’s actuaries had expected that would happen. This is consistent with what Wellpoint officials told the Washington Post’s Sarah Kliff earlier this month. It means that Wellpoint assumed it would get an older, sicker population when it set prices for 2014—and that, if the pattern holds, Wellpoint won’t be taking the kinds of losses that force higher prices next year.

Wellpoint is just one insurer, obviously, and what officials tell investors may be overly optimistic. Meanwhile, Wednesday’s call included some material that Obamacare critics will cite, correctly, as proof of the law’s shortcomings. For example, Wellpoint is still getting a trickle of information about people who enrolled in time to have coverage on January 1, but whose data hadn’t previously made it to the insurer.

Most important, open enrollment still has more than two months to go. It’s way too early to judge how Obamacare will ultimately affect any individual insurer, let alone the entire industry and the health care system as a whole. 

But if the optimists need to be cautious, so do the pessimists. And, with few exceptions, they rarely are.

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