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Thursday, April 10, 2014

The Morally Backward and Unrealistic Obamacare “Death Spiral”

Hundreds of health care advocates huddled, sheltered from a January snowstorm in the underground ballroom of the Capitol Hill Hyatt, to hear Vice President Joe Biden speak. Ezra Klein took the stage immediately afterwards. Klein slammed the media for its obsession with the doomsday consequences of “young invincibles” not signing up on the new health insurance marketplaces, also known as the “death spiral.”

“I’m not the person that American politics needs to be most concerned about,” Klein said. “That’s morally backward. It’s not a win in healthcare if we enroll all the healthy 30-year-olds but don’t enroll all the people who need care right now.”

The phenomenon, popularly referred to as the “death spiral,” has roused fear into the media and American people for four years now. The theory goes like this: Step one: young, healthy people don’t get health insurance because they don’t think they’ll need it or can afford it. Step two: the lack of young, healthy people in the system creates an unhealthy risk pool, forcing companies to raise premiums to compensate for their expensive clients. Step three: the rise in premiums makes insurance even less appealing to young people. Step four: repeat step one—hence the “spiral."

With the original sign-up target for the ACA now met, I had hoped this topic would be long gone, but the media is still warning us about the lack of young people who’ve signed up. Klein’s simple moral argument puts this threat into perspective. The sick need health insurance, not the healthy. A successful health care system provides health care to those who need it. Yes, consumers who are most in need of health care are more likely to buy it. That’s basic supply and demand economics. With the ACA, you can no longer be denied health insurance because of a pre-existing condition, making supply meet demand. The ACA makes health care a right, not a privilege. Of course our old health care system wasn’t designed to handle such ambition. The new health reform is. It’s ambitious. It also ensures that that the marketplaces will function properly. Here’s how:

1. A limited open enrollment period makes it difficult for people to wait until they get sick to purchase health insurance.

2. Compared to older individuals, health insurance is much less expensive for young people—in some cases, by a factor of three. This is not a single payer system. While young people pay the least, old people pay the most, compensating for the cost to cover them.

3. The gradual increase in penalties for not having insurance (the individual mandate) will eventually be too expensive to ignore. This will ensure that all, if not most, healthy people will pay into the system.

4. Three ACA risk mitigation provisions—risk adjustment, risk corridors and reinsurance—limit losses and gains for insurance companies, allowing them to keep premiums down. Companies that gain large profits from having a healthy risk pool give money to companies with an unhealthy risk pool. These mechanisms are designed to be budget neutral. In fact, a recent CBO report projected that the programs will result in an $8 billion surplus for the federal government over the next decade.

Any reasonable observer can see that this is a carefully constructed law, designed to mitigate uncertainty while reforming a $3 trillion industry that so desperately needs it. Given the tremendous extent to which the ACA protects the insurance marketplace (as listed above), rousing fear over the issue of “young invincibles” is yesterday’s news and unproductive. The CEO of Aetna has even indicated that they are more than happy with the age distribution of enrollments so far.

The time for judging the ACA’s merits is over. And like Jonathan Cohn of the New Republic said, “I haven’t seen any doctors on welfare.” Instead of predicting failure, highlight successes and contribute new methods of improvement.  "There are uncertainties ahead," says Larry Levitt of the Kaiser Family Foundation, "but it's hard to deny at this point that the law can work and that many people are benefiting from it, both those who were uninsured before and those that already had coverage."

In my opinion the ACA is a very modest law, with close to 3,000 pages meant to improve and preserve an American health care system that ranks thirty-sixth in the world. It moves us in the right direction, making health care a right and not a privilege.

We have a right to be protected from violence and crime. We have a right to be protected from environmental dangers like fire and disasters. The police come to save us. The firemen come to save us. But when ambulances comes to save us, many worry about how they we will pay for it. The ACA promotes a right to health care. Now all of us will have the peace of mind and dignity to deal with an already difficult situation when ambulances come to save us.

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