Many are concerned that if the plaintiff in King v. Burwell succeeds in ending subsidies in 37 states, a win will trigger a death spiral in the health insurance market.
Not to worry, win or lose, the spiral has already begun.
A death spiral begins when insurance companies raise premiums to the point where healthy policyholders drop coverage due to cost, leaving sicklier policyholders in the risk pool. This forces another rate increase resulting in more and more individuals dropping coverage, continuing to the point where only those with the most serious medical conditions are insured.
It has happened before. A handful of states back in the 90’s forced insurance companies to insure all that applied, charging everyone the same rate. Healthy people in those states quickly learned that dropping their coverage until it was needed was one way to keep food on the table. Within a decade the average family policy cost $3800 a month in those states, 40% of all individuals dropping their coverage.
As was the case with the handful of states in the 90’s, the Affordable Care Act forces every state to issue coverage to all that apply, and charge the same premium for each class. The individual mandate forces everyone to buy, or risk a comparatively small penalty for going uninsured.
A healthy insurance market needs 40% of all insured to be young and healthy. Today’s market, five years into the grand experiment known as the ACA, has 28% participation. Worse yet, in 2017 two insurance company bailout programs built into the PPACA end. Premium rates have already increased by 41% on average in 2014, and huge increases are on the way again in 2017 when the bailouts end.
The death spiral began in 2014, and will speed up in late 2016, whether subsidies end this year or not.