5 Reasons to Not Freak Out About an Obamacare Death Spiral

How are we doing with 18 to 34-year olds? (NBC Universal)

Obamacare is like the TV business: It's all about the key demos.

In other words, you need enough young and healthy people signing up to offset the sicker ones. How many young and healthy people is enough? The administration says it needs about 40 percent of enrollees to be 18 to 34 years old to keep premiums from rising too much. But through December, only 24 percent of the 2.2 million people who have picked an exchange plan came from this younger demo.

Does that mean Obamacare is doomed to die in a fiery death spiral? No. That's a very specific (and worst) case where not enough young people sign up and premiums spike—which makes even more young people drop coverage and premiums spike even more. But that's not going to happen, because there are fail-safes to prevent it from happening for the next three years.

Here's what is going to happen: Sign-ups are going to accelerate before the deadline. There will be some bumps. People might not initially get the coverage they think they've signed up for. Or they might be upset about narrow doctor networks. Or, in some cases, they might have to pay more for the same coverage they had before. These are all problems—some of them by design—but they aren't existential problems. There just isn't a lot of evidence that Obamacare is already doomed.

That said, here are five more reasons not to freak out if the administration doesn't hit its target for sign-ups or young invincibles.

1) The "7-million sign-ups" figure isn't the most important number if you're worried about a death spiral. What really matters is whether enough healthy people sign up to subsidize the sick ones. And that's all that matters. Indeed, it'd be better for insurance prices to only enroll 5 million people with the right health mix than 7 million people with the wrong one.

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2) The state-by-state numbers are more important than the total number. Each state has its own exchange with its own risk pool that needs enough healthy people. In other words, it doesn't help New Jersey if New York signs up way more "young invincibles." They're separate.

3) The health mix matters more than the age mix. For one, there are plenty of fit 55-year olds and not-so-fit 25-year olds. For another, Obamacare doesn't let insurers charge sick people more, but it does let them charge older people more—as much as 3 times more. That means a grayer-haired risk pool would still have enough premium money coming in to kind of work. So why do we care so much about signing up younger people? Well, we don't know how sick enrollees are, but we do know how old they are—and age is our best proxy for health.

4) Enrollment numbers for young people right now don't tell us much of anything. Sure, young enrollees are scarce today. But they won't stay scarce as the March deadline looms. At least that was the pattern in Massachusetts when the state implemented Romneycare—basically the same system—back in 2007. You can see that in the chart below from Jonathan Cohn. Young people were slow to sign up at the beginning of open enrollment, and rushed to sign up at the end. They procrastinated.

In other words, the state insurance pools should get younger and healthier over the next 3 months.

5) Even without more young people, Obamacare would muddle through, not implode.  The nonpartisan Kaiser Family Foundation estimates that premiums would only rise 1 to 2 percent in 2015 if insurance pools don't get any younger from here on out. That's not the start of a death spiral. That's not the start of any kind of spiral, period. Part of it is that the actuarial math just isn't that bad even if young invincibles only making up a quarter of sign-ups. Another part is that the system's shock absorbers will defray any unexpected costs to keep insurer losses—and the need for premium hikes—at a minimum.

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Call it the soft bigotry of botched expectations. A few months ago, nobody would have celebrated the fact that Obamacare hadn't fallen apart before it really began. Then Healthcare.gov happened. There's still a long way to go, but it looks like the worst-case scenario of a premature death spiral is just that—a scenario.

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.


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