WASHINGTON Dec 17 A threat to America's health
insurance overhaul has been that young people would not buy
coverage in new marketplaces, possibly pushing the program into
a disastrous spiral of falling enrollment and rising premiums.
But this worst-case scenario is looking more far-fetched,
according to a study by the Kaiser Family Foundation, which sees
just slight increases in premiums in 2015 even though enrollment
of younger people so far is well below the Obama
Preliminary figures suggest roughly a quarter of Americans
signing up to buy insurance under the policy have been between
the ages of 18 and 34, below the administration's target of
roughly 40 percent.
Their money is crucial for the program's success because it
helps compensate for the higher costs of insuring older
Americans, who tend to have more health problems.
"It is nowhere near what is sometimes referred to as a death
spiral," Larry Levitt, a health economist at the foundation,
told reporters following the report's release on Tuesday.
The sweeping 2010 healthcare overhaul, known as "Obamacare"
and aimed at expanding coverage by private insurers, is the
signature domestic policy of President Barack Obama.
The policy, which created online insurance exchanges across
the country, limits how much insurers can charge older, sicker
Americans compared with younger, healthier ones. This helps make
insurance more affordable for older Americans who most need it,
but it requires the young to pay more to subsidize the old.
The hitch is that if fewer young people buy coverage for
2014 than private insurers currently plan, firms could raise
premiums the next year to protect their profits.
A big enough rate hike could lead to even fewer young people
signing up in 2015, and the cycle could then repeat itself in
Under this death spiral scenario, the program would fall
well short of expectations that it expand coverage to 25 million
Americans by 2016, while the cost of subsidizing each insurance
plan would be much higher than planned.
"You would basically have a failed program," said Josh
Gordon, policy director at The Concord Coalition, a think tank
specializing in budget issues.
But Gordon and other policy experts have long expressed
doubts over how plausible such a scenario could be, even as the
Obama administration botched the roll-out of the exchanges in
October with a dysfunctional website.
According to the Kaiser report, if 25 percent of enrollees
are age 18-34 next year, insurers would have to raise premiums
by just 2.4 percent in 2015 to cover the shortfall.
Insurers typically set their premiums to achieve a 3-4
percent profit margin, so the current trend in enrollment, if it
extended throughout 2014, "could reduce the profit margin of
insurers substantially" that year, according to the report.
But insurers would only have to raise premiums by a
percentage point or two to protect their profits. Getting
enrollment by younger people to 40 percent would fully cover the
cost of making insurance more affordable for older Americans,
Levitt and his coauthors said.
Their number crunching doesn't take into account other
factors that could also help ward off a death spiral.
For one, the government heavily subsidies policies for many
Americans, largely shielding them from premium hikes.
Also, because selling insurance to the young is more
lucrative and people tend not to change policies very often,
insurers are motivated to keep rates low to attract new
"A death spiral is highly unlikely," Levitt said.
(Reporting by Jason Lange; Editing by Vicki Allen)