With the election past us things are not looking well for The Affordable Health Care Act (AHCA), or Obamacare if you are so inclined to call it. President Trump has been working on some new legislation concerning the bill, and these may yet hasten the inevitable death spiral which the AHCA is already sinking into.
The health insurance death spiral, in essence is the path to failure for an insurance plan, so let’s break down the steps in order to better understand the process, and where we currently stand.
1. Insurance providers are forced to disregard insurees risk when determining rates
In essence, the insurance provider is not allowed to consider a person’s health or even their preexisting conditions when deciding to either insure the individual, or set their rates. This may initially sound all well and good for those who are not in a good position, however it quickly destabilizes the structure of an insurance provider.
The AHCA requires that all new patients be accepted regardless of associated risk by the way.
2. Elevated risk patients buy insurance at an incredible pace
This step is for the most part common sense, but needs to be emphasized. Patients who were not previously able to buy insurance, due to either a preexisting condition, or general bad health, are now able to get insurance for a more reasonable price. This leads to thousands of new subscribers in a relatively short period of time, while simultaneously not increasing the number of low risk patients, the bulk of which pay the costs for the unhealthy ones in the group.
3. Premiums rise, and healthy patients leave
As the ratio of healthy to unhealthy individuals rise the rates charged must increase to make up the gap in costs. However, as the rates climb the number of low risk recipients plummets. Not only are there fewer new people signing up, but also those who were previously insured begin leaving as they see less and less value in the service for its cost.
As you can see, it creates a self-sustaining loop of destruction. As the ratio becomes more skewed the costs continue to rise, which makes convincing the rest of the populace to “buy in” a daunting task.
So the question is, “Is Obamacare in a death spiral?” And the answer would appear to be yes.
Trumps new legislation does not seek to end the high risk requirements put on insurers, which has large companies like Aetna considering pulling themselves out of certain markets.
Obamacare’s rates are expected to rise at a national average of nearly 25% in 2017. Insurers and legislature are attempting to combat this with individual subsidies, to better assist the public with the rate hikes. Although, the new bill is removes the tax penalty for being uninsured. While being devoid of health care insurance is not desirable, healthy individuals who would get the insurance for a reasonable cost are being scared away. That being said the bill does make it so that insurance companies can charge up to 30% more on premiums for a year should the recipient lapse on their coverage. Hopefully this stipulation would help keep those who are insured from leaving, but we shall see.
In short the AHCA is not currently in a full-scale death spiral. That being said though, the process is definitely starting, and it’s not looking good for the future of the plan. Without some serious legal reconstruction it’s going to go from dipping its toes in the deep water, to drowning in a very short period of time.
If you would like more information on how these changes in health care policies are going to effect you and your future, then please feel free to contact us. We’ll be happy to help.