Ever since the Affordable Care Act became law, critics have warned that it would cause a “death spiral” in the individual health insurance market. Those fears were unfounded, but if Republicans in Congress repeal the ACA without immediately replacing it, they might just cause one.
The ACA prohibits insurers from denying access to coverage based on pre-existing conditions and also prohibits them from charging different premiums to individuals based on their health. Everyone is in one big insurance pool, sharing in the average cost. Critics worry that in such a system, people who are sick buy coverage because they know they need it, but healthy people hold out, raising the average cost of doing business for insurers and leading them to raise premiums on everyone. That, in turn, could cause yet more healthy people to drop insurance because they no longer see it as a good value, again requiring insurers to increase premiums, and so on, resulting in a death spiral.
To prevent this from happening, the ACA encourages healthy people to get insurance through a carrot (premium subsidies for low- and middle-income people) and a stick (the so-called individual mandate, which generally requires people to be insured or pay a penalty).
It hasn’t worked out perfectly, with more sick people enrolled than insurers expected when they initially set their premiums in 2014. That’s a big reason why premiums are rising more quickly for 2017 — with benchmarks increasing 22% on average nationally and 8% in California. Some insurers have exited the market, and Obamacare consumers face fewer choices. But the hope is that these higher premiums represent a one-time market correction rather than a sign of worsening trends to come.
Of course, the election of Donald Trump and continued Republican control of Congress have put the future of the ACA itself in doubt. Republicans have consistently promised to repeal and replace the health law, and they now have the ability to fulfill that promise — though, according to recent news reports, they will seek to repeal the law before they figure out how to replace it.
Judging from the GOP’s strategy during the Obama administration (when it was understood that the president would veto any legislation that hurt his signature law), Republicans may use a budget maneuver known as a reconciliation bill to repeal major parts of the ACA. The advantage of such a bill is that it cannot be filibustered in the Senate, meaning it can be passed with 51 votes instead of 60. The disadvantage is that it can be used only to make changes that have a direct effect on federal spending or taxes. So, for example, a reconciliation bill cannot repeal the ACA’s insurance market regulations, including protections for people with pre-existing conditions. But it can repeal the law’s premium subsidies and the individual mandate.
If that’s what GOP lawmakers decide to do — as many informed observers suspect they will — there’s a high likelihood that they would, in fact, produce a death spiral. With guaranteed insurance for people with pre-existing conditions but no subsidies or individual mandate, premiums could skyrocket. Or, more likely, insurers simply would exit the market. Why risk losses when the whole law is getting repealed anyway? The upshot would be canceled coverage with no other options for people buying in the ACA’s marketplaces (like healthcare.gov or Covered California), as well as those buying directly from insurers, where the same rules apply.
Even if the GOP eliminates only the individual mandate — while leaving other aspects of the ACA in place for a period of time — this could happen very quickly.
But there are ways to avoid this potential chaos.
One approach would be to hold off on voting to repeal the ACA until the Republicans settle on a replacement. That could put Republicans in a difficult position because they have promised to repeal the ACA quickly and have not yet reached consensus on an alternative.
Another approach would be to leave the individual mandate in place and extend temporary mechanisms included in the ACA to stabilize the insurance market, providing subsidies to insurance companies that enroll high-cost patients and those that experience financial losses. This approach, too, poses political challenges because Republicans strongly oppose the individual mandate and some have opposed the ACA’s stabilization mechanisms as a “bailout” of insurers.
President-elect Trump said recently that he wanted to keep the ACA’s prohibition against denying coverage for people with pre-existing conditions. It’s understandable that Republicans would want to keep the popular stuff in the ACA while getting rid of the unpopular stuff (the individual mandate and increased taxes). Unfortunately, there’s no magic pixie dust to make that easy or avoid difficult trade-offs.
Larry Levitt is senior vice president at the Kaiser Family Foundation, a nonprofit organization focusing on national health issues. KFF is not associated with Kaiser Permanente.