Senate Republican leaders unveiled their health-care bill Thursday morning, after weeks of crafting it behind closed doors. The bill keeps some popular parts of the Affordable Care Act, such as the provision preventing insurance companies from charging people more or denying them coverage based on preexisting conditions, and eliminates some unpopular parts, such as the individual mandate that requires people to buy insurance or pay a penalty.
But those two provisions, taken together, are likely to send the individual marketplace into a “death spiral,” ending with only the sickest people insured, sky-high premiums and insurers exiting the individual market, according to experts across the political spectrum. The bill has a $112 billion market stabilization fund to prevent this, but experts doubt it, or a similar measure in the House bill, would be enough.
Here’s how a death spiral would happen. People shopping for insurance in the individual market all sit on a spectrum from healthy to sick.
Because of the preexisting condition protections put in place by the Affordable Care Act, insurance companies must offer all these people insurance at the same price. The individual mandate encourages healthy people to buy insurance, decreasing the average health-care costs of all the insured people — and therefore, their premiums.
(Note that in these animations, the number of people and the number of dollar signs are illustrative. They don’t indicate the actual proportion of people in the marketplace or the premiums they’re paying.)
But the Senate bill disrupts this. It keeps the protections for those with preexisting conditions but gets rid of any incentive for healthy people to buy insurance. If they get sick down the road, they could just start buying insurance then. When they leave the marketplace and only sicker people remain, the average health care costs for insured people would increase, causing premiums to increase.
And this is where the so-called “death spiral” starts. Now that premiums are higher, it doesn’t make sense for the barely sick people to remain in the market, so they leave. Again, this makes costs for insured people rise, so premiums rise.
Then the same thing happens to the moderately sick people.
Until finally, only the sickest people remain in the market.
And somewhere along the way, offering individual insurance plans at all becomes a losing game for insurance companies, and they start to leave the marketplace.
If this series of events occurs, the individual marketplace will end up less stable and robust than it was even before the ACA. Then insurance companies could charge sick people more than healthy people, so healthy people’s premiums would stay low and they wouldn’t have the same incentive to leave the marketplace.
Republicans control the Senate, but to pass the bill, they'll need almost all of their members to support it, and that's proving challenging. Five GOP senators have already announced their opposition to the bill "as written," and the party can only afford two "no" votes. And if it does pass — a vote is expected on Thursday — it will have to be reconciled with the House’s much more conservative bill before heading to President Trump’s desk.