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One Key Thing No One Knows About Obamacare

Sep 30, 2013
Originally published on September 30, 2013 6:44 am

Tuesday is a big day for Obamacare. The online marketplaces where people can shop for health insurance are supposed to open for business.

No one really knows who is going to sign up — not the Obama administration, not the insurance industry, not the president's critics. Yet the success of the law hangs on this question: Will the right mix of people sign up? In particular, will healthy people buy health insurance?

"The danger if you don't get young, healthy people signing up ... is that this program will collapse," says Robert Laszewski, president of Health Policy and Strategy Associates.

"We actually have a term for this in the industry," says Laszewski, who advises health insurance companies. "We call it a death spiral. And many insurance companies have had death spirals so this is not a theoretical exercise."

Here's how a death spiral happens: Most of the people who sign up for an insurance plan are sick. It costs a lot to take care of them. So the next year, to cover the high health costs, the insurance company raises its premiums. But then only really sick people sign up. So the insurance company has to raise prices again. Eventually, the insurance gets so expensive that no one buys it, and the whole system falls apart.

The designers of Obamacare were aware of the dangers of a death spiral. That's why the Affordable Care Act has both a carrot and a stick to encourage people to sign up. The stick is that penalty or fee for people who don't buy insurance. But the stick is pretty small in the first year. The carrot: insurance subsidies for people with low incomes.

"It's a great deal," says Zeke Emanuel, one of the architects of the Affordable Care Act. "For an individual making between $15,000 and $20,000 this is, 'Get health insurance 80 percent off!' Where do you see sales like that?"

The first people to sign up when the exchanges go online tomorrow aren't likely to be young and healthy, says Sherry Glied, an economist at NYU's Wagner School.

"The first people who sign up are the people for whom buying health insurance was the number one thing on their to do list," she says. "And buying health insurance is the number one thing on your to do list if you expect you are going to be sick."

Younger people, Glied says, are likely to sign up later. Maybe it will happen when they go home for the holidays and their parents ask them if they have insurance.

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STEVE INSKEEP, HOST:

As we've been reporting, tomorrow is a big day for the Affordable Care Act. That's when the health insurance exchanges are supposed to open for business. Those are the online marketplaces where millions of people who do not have insurance can shop and pick a plan. When those exchanges open, we'll start to get the answer to a really big question: Who's actually going to sign up? Here's David Kestenbaum with NPR's Planet Money team.

DAVID KESTENBAUM, BYLINE: No one really knows who is going to sign up. Not the Obama administration, not the insurance industry, not the critics. And really the success of the law hangs on this question: Will the right mix of people sign up? Will healthy people - who rarely see a doctor - will they buy insurance?

ROBERT LASZEWSKI: The danger if you don't get young healthy people signing up or if you don't get healthy people generally signing up is that this program will collapse.

KESTENBAUM: This is Robert Laszewski, president of Health Policy and Strategy Associates. He advises insurance companies.

LASZEWSKI: We actually have a term for it in the insurance industry. We call it a death spiral. And many health insurance companies have had death spirals, so this isn't a theoretical exercise.

KESTENBAUM: A death spiral is where sick people sign up and it costs a lot to take care of them. So the insurance company has to charge more for the insurance plan the next year. But then only the really sick people sign up that year. So the insurance company has to raise prices again. The same thing happens the next year, and eventually the whole thing falls apart.

LASZEWSKI: And that is the real challenge that Obamacare faces. If we don't get a good cross-section of healthy and sick signing up to take care of each other here, this thing is not sustainable.

KESTENBAUM: How worried are you that that might happen?

LASZEWSKI: I'm very worried that that might happen. I'm particularly worried in states where there hasn't been political support for this.

KESTENBAUM: The designers of the Affordable Care Act, of course, were well aware of the death spiral danger or of an overload of sick people pushing the insurance prices up. That is why the Affordable Care Act has both a carrot and a stick to encourage people to sign up. The stick is that penalty or fee for people who don't buy insurance. But the stick is pretty small in the first year. There is the carrot though. And it's a pretty big carrot. Subsidies.

ZEKE EMANUEL: It's a great deal. It's just that simple.

KESTENBAUM: Zeke Emanuel was one of the architects of the Affordable Care Act. He says for a lot of people the subsidies are substantial.

EMANUEL: For an individual making between 15 and about 20 thousand dollars, this is, you know, get health insurance, 80% off. Where do you see sales like that?

KESTENBAUM: Various groups have tried to model how this will all shake out. Zeke Emanuel says that from what he's seen, he thinks everything will be OK, that in most places enough healthy people will eventually sign up for the whole thing to work. Eventually. It could take months or even years before we know.

Sherry Glied is an economist at NYU's Wagner school. She's worked for the first Bush administration and the Clinton and Obama administrations. She says the very first people to go online tomorrow, most of them probably won't be those healthy and younger folks.

SHERRY GLIED: Think about it this way. The first people who sign up are the people for whom buying health insurance was the number one thing on their to do list. And buying health insurance is the number one thing on your to do list if you expect that you're going to be sick. So the people who sign up on day one, we don't expect them to be young healthy people.

KESTENBAUM: Younger people, she figures, will sign up later. Maybe they'll be home for the holidays and their parents will say, so do you have health insurance? David Kestenbaum, NPR News. Transcript provided by NPR, Copyright NPR.