Avoiding Obamacare’s ‘Death Spiral’

If the administration misses its deadline, the consequences could be severe.

Jeff Zients, acting director of the Office of Management & Budget under President Obama, in his Old Executive Office Building office on Wednesday, February 9, 2011.
National Journal
Sam Baker
Oct. 27, 2013, 7:33 p.m.

If the Obama ad­min­is­tra­tion can meet its new dead­line for a func­tion­al Obama­care web­site, it might be able to avoid ser­i­ous policy con­sequences from the rocky ini­tial rol­lout and avoid what is known in the in­sur­ance in­dustry as a “death spir­al.”

Pres­id­ent Obama’s re­frain lately is that the Af­ford­able Care Act is “more than a web­site.” And that’s true. But the prob­lems plaguing Health­Care.gov are more than web­site prob­lems. They’re en­roll­ment prob­lems — prob­lems that pre­vent people from ac­cess­ing the rest of the ser­vices brought about by the law.

Jeff Zi­ents, the former White House budget dir­ect­or asked to over­see re­pairs to the site, said Fri­day that the ad­min­is­tra­tion now be­lieves Health­Care.gov can be fully func­tion­al by the end of Novem­ber, and that it will make in­cre­ment­al pro­gress un­til then.

But if the site’s woes last much bey­ond Thanks­giv­ing, health care ex­perts say, there will be ser­i­ous im­plic­a­tions for the law’s over­all suc­cess, not just the polit­ics that sur­round it.

“I think this is an ex­change-en­roll­ment prob­lem in a big way “¦ it’s in sub­stant­ively bad shape,” said Douglas Holtz-Eakin, a con­ser­vat­ive eco­nom­ist and former Con­gres­sion­al Budget Of­fice dir­ect­or who now leads the Amer­ic­an Ac­tion For­um.

Even be­fore the new dead­line was an­nounced, health care ex­perts saw late Novem­ber as a turn­ing point for the law’s in­sur­ance ex­changes, the new mar­ket­places, ac­cessed primar­ily through Health­Care.gov, where people who don’t get cov­er­age through an em­ploy­er can shop for private in­sur­ance plans.

The web­site is the primary way for people to en­roll in cov­er­age through the law. And if too few people sign up, those who do en­roll could see high­er premi­ums and dwind­ling choices.

The ad­min­is­tra­tion is hop­ing to sign up roughly 7 mil­lion people by the end of March, in­clud­ing about 2.7 mil­lion young adults. Get­ting young people in­to the sys­tem is cru­cial to off­set­ting the cost of guar­an­tee­ing cov­er­age to people with pre-ex­ist­ing con­di­tions.

If they miss those goals be­cause of a founder­ing en­roll­ment pro­cess, the ex­changes might not work as in­ten­ded.

The White House has urged people thwarted by Health­Care.gov to use call cen­ters or pa­per ap­plic­a­tions. But the people most likely to per­sist through the en­roll­ment obstacle course are the sick­est, old­est con­sumers — not the young people who have to be per­suaded even to check out prices on the web­site.

That means the risk pools for the ex­changes could be worse than ex­pec­ted, sad­dling in­surers with ex­tra costs and driv­ing premi­ums up next year And that, in turn, could make en­roll­ment even less at­tract­ive to healthy people. It’s known in the in­sur­ance in­dustry as a “death spir­al.”

“There’s some bad dy­nam­ics if they don’t get more people,” Holtz-Eakin said.

He said the ad­min­is­tra­tion’s polit­ic­al and sub­stant­ive prob­lems could over­lap, even if the web site gets bet­ter. The bad ini­tial ex­per­i­ence with Health­Care.gov may simply ru­in its repu­ta­tion in the eyes of young, web-savvy con­sumers, Holtz-Eakin said.

“Once the brand is bad, what do you do? They have built the first Hy­undai for the web­site,” he said.

Oth­er health care ex­perts are more char­it­able. They say they didn’t ex­pect many people to show up on day one and buy a plan, so the ad­min­is­tra­tion le­git­im­ately has some time to fig­ure things out.

“A lot of folks are win­dow shop­ping right now,” said Dan Schuyler, dir­ect­or of ex­change tech­no­logy at the con­sult­ing firm Leav­itt Part­ners.

He ex­pects people to fo­cus more ser­i­ously on buy­ing in­sur­ance over the next few weeks, so if the site is work­ing by then, the rocky start might not make much of a dif­fer­ence.

Talk of delay­ing the law’s in­di­vidu­al man­date or ex­tend­ing the win­dow to buy in­sur­ance is pre­ma­ture, he said. The White House will have to see how en­roll­ment num­bers are look­ing by Janu­ary, then make a de­cision about wheth­er the pro­cess has caught up to ex­pect­a­tions.

“Then the ad­min­is­tra­tion may con­sider ex­tend­ing open en­roll­ment, but right now I think it’s way too early to make that call,” Schuyler said.

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