The death of Obamacare’s death spiral

January 14

1. Let's begin with what we know: The Department of Health and Human Services reports that 24 percent of the people purchasing health insurance through Obamacare's insurance marketplaces are between ages 18 and 34. That's below the 38 percent that most people -- including the Obama administration -- estimate the law needs  if it's to keep premiums as low as everyone hopes.

2. But -- and this can't be emphasized enough -- this is not the final risk pool. No one anywhere expected that the risk pool would be balanced by Jan. 1. Major health laws always follow the same pattern: The people who badly need insurance sign up first, and they tend to be older and sicker. Younger people sign up later -- typically right before the penalty hits. So far, the age pattern in Obamacare enrollment is tracking the age pattern in enrollment for the Massachusetts reforms quite closely:

cohn-obamacare-chart

The new numbers see Obamacare through December, which is the law's third month of open enrollment and its first month of open enrollment with a working Web site. So you can decide whether February, March or April offer the right comparison to Massachusetts. Whichever month you choose, Obamacare's enrollment pattern looks a whole lot more like Massachusetts than I would've thought given the disastrous launch and the challenging political environment.

3. The big question is what enrollment looks like on April 1 -- after the open enrollment period ends. The "important thing to watch," writes the Kaiser Family Foundation's Larry Levitt, "is [whether] enrollment among young adults trending upward? So far yes, based on graphs here." It's safe to say there will be many more young adults in the pool in April then there are now. But no one knows how many more.

4. The risk of a "death spiral" is over. The Kaiser Family Foundation estimates that if the market's age distribution freezes at its current level -- an extremely unlikely scenario -- "overall costs in individual market plans would be about 2.4% higher than premium revenues." So, in theory, premiums costs might rise by a few percentage points. That's a problem, but it's nothing even in the neighborhood of a death spiral.

5. That calculation, however, omits the transitional policies in Obamacare that help insurers keep premiums low as the risk pool sorts itself out over the first three years. Add those in, and it's unlikely that 2015 will see any premium increase at all. Robert Laszewski, a consultant for the insurance industry, agrees. "I think the 2015 rates will be the rates you’re looking at today, more or less," he says.

6. There is no single Obamacare risk pool. Each state -- and the District of Columbia -- has its own risk pool. And the age breakdown varies sharply by state. "Most exchanges tend to hover somewhere in the 20-percent range," writes Sarah Kliff. But there are outliers. "In the District of Columbia, 44 percent of enrollees are young adults, the highest for any exchange (and remember: This is just the individual marketplace, not the small business exchange where Congressional staff shop). Arizona and West Virginia have the lowest rates of young adult sign-ups, who make up 17 percent of their marketplace."

7. "The health mix of ACA enrollment is much more important than the age mix," writes Levitt.  So far, we're using age as a stand-in for health. But if all the young people signing up are sick, then the models break down. And if the older people signing up are healthier than people expect, then the models break down in the other direction. Indeed, the most valuable enrollee, from the insurer's perspective, isn't a healthy 21-year-old. It's a healthy 55-year-old. They pay more into the system than the healthy young person but they don't take much more out. Or, as Levitt puts it, "Will we get the 60 year old gym rats?"


Everyone loves silver.

8. People are opting for reasonably generous plans. As The New Republic's Jonathan Cohn notes, "The least generous available to everybody are the so-called bronze plans. But the next level up, silver plans, are proving far more popular. Sixty percent of shoppers have chosen silver plans, more than three times as many have chosen bronze. Smaller portions still selected gold or platinum, and barely anybody has opted for special catastrophic coverage plans available only to people who are under 30."

9. Most of the people who've enrolled in insurance haven't paid for it yet. Presumably, most of them will pay for the insurance they've bought. But if people get the bill and decide to ignore it, or cancel the policy, then obviously the risk pool will change.

10. The expectation is that both the Obama administration and the insurance companies are going to kick their enrollment campaigns into high gear in the coming months -- and those campaigns will be overwhelmingly focused on young adults. The Obama administration, in particular, had a sophisticated plan that borrowed strategies from the 2012 campaign to microtarget young adults, find out exactly what they want and who they listen to, and persuade them to buy health insurance. Whether the campaigns actually work is anybody's guess. But in March, with the Web site working and the individual mandate looming, they're going to be a very big deal.

11. We still don't know how many people signed up for Medicaid in December. Those numbers should come out in the next week or so.

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