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The GOP’s Health Care Proposals Could Set Off a 'Death Spiral' The GOP’s Health Care Proposals Could Set Off a 'Death Spiral'

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The GOP’s Health Care Proposals Could Set Off a 'Death Spiral'

Republicans say getting rid of the individual mandate is fair to ordinary Americans. But it could end up making insurance unaffordable for them.

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House Republican leadership is strategizing on how to exploit opposition to the president's health care law, one step at a time.(J. Scott Applewhite/AP)

Republicans in Congress, seizing on recent bad news over the implementation of President Obama's health care law, have been pushing proposals to delay or repeal a central provision of the law: its requirement that people obtain health insurance or pay a tax penalty. It may be good politics, but it would be damaging policy.

The unpopular individual mandate is a key provision of the health reform law's structure, necessary to make sure that its other market reforms don't lead to exorbitant prices and a collapse of state insurance markets. Removing or postponing it with no other reforms could set off a phenomenon known in health policy circles as the "adverse selection death spiral."

 

Arguments about the consequences of eliminating the individual mandate were in heavy circulation last year, as the Supreme Court considered stripping the provision from the law. The prospect terrified the insurance industry, which launched a big public media campaign highlighting "the link" between Obamacare's insurance market reforms and the mandate. The administration also has its mandate-defending talking points at the ready, too. It told the Supreme Court that the mandate couldn't be cleanly excised from the rest of the law. (The law's critics agreed, saying it was so central that if it was deemed unconstitutional, the entire law should fall with it.)

Here's why it's important: The law includes rules that require insurers to sell a plan to anyone who wants to buy one—so that even people with pre-existing health conditions can access the market. It also limits how much insurers can vary their prices from customer to customer. Carriers aren't allowed to charge higher rates to a person with a history of cancer or hay fever—though they are allowed to charge higher prices to old people than young ones and to smokers than nonsmokers. Without a mandate, healthy people could simply decline to buy insurance until they get sick and need it, leaving only older and sicker people in the market. Over time, their health claims would drive up premium prices, pushing more healthy people out of the market, and raising prices further, and on and on. That's why it's called the death spiral.

Congressional Republicans are arguing that delaying the mandate is the only fair thing to do now that the Obama administration has postponed a requirement that large employers cover their workers and pay a fine. They've couched it in populist terms that resonate rhetorically. But the mechanics of the death spiral mean that axing the mandate could be bad news for many people who want to buy insurance in the individual market, most among the ordinary American families the GOP says it wants to help.

 

There's a healthy scholarly debate about exactly how bad this phenomenon would be. Some analysts think that "death spiral" is probably an exaggeration, while others point to state experiences with similar reforms that have wrecked markets. But either way, Republicans who have been criticizing the current prices in the new insurance marketplaces as unaffordable are now recommending a policy choice that would make them worse.

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