The Senate health bill is a recipe for a death spiral

There is a lot to digest with the Senate’s health care bill. But let’s zoom in for a moment on the individual market that the bill envisions.

The Senate bill would keep the Affordable Care Act’s requirement that insurers have to cover everyone, including people with expensive preexisting conditions. It mandates that insurers offer sick and people and healthy people the same premiums, too.

But the Senate bill doesn’t require all Americans to purchase health coverage, as the Affordable Care Act does. The requirement to buy insurance or pay a fine was one of Obamacare’s least popular provisions, but it was necessary. If the law was going to keep premiums affordable and allow sick people with expensive medical conditions to buy coverage, it would need to get healthy people to buy plans too. The healthy people in any insurance market subsidize the higher spenders.

An insurance market where insurers have to cover everyone but people don’t have to sign up is a recipe for a death spiral. Premiums would likely rise as only the people who actually need health insurance coverage purchase plans and healthy people decide to take the risk of remaining uninsured.

This is how a Rodney Whitlock, a former staffer for the Republicans on the Senate Finance Committee, described the scenario:

One element of the bill that would protect against death spiral would be the tax credits offered to low-income Americans, which limit how much they have to spend on a health insurance plan.

But Whitlock argues those won’t actually do that much because the plans they help purchase aren’t that attractive to consumers. The type of plans that the Senate bill would subsidize would cover 58 percent of an average consumers costs. This is a relatively ungenerous plan; it means that, on average, the individual ends up paying 42 percent of her health care bill through some combination of premiums, deductibles, and copayments.

The Urban Institute has estimated that plans with 60 percent actuarial value (slightly higher than the Senate proposal) would include a $6,850 deductible for individuals or $13,700 deductible for families in order to make the numbers add up. And that’s after paying monthly premiums.

“Why would you pay to enroll in that kind of plan if there was no penalty?” Whitlock, now an adviser at MLS Strategies, argues. “If you’re paying so much of your own money up front just to get through the deductible, there isn’t much to the plan.”

Republicans have long predicted an Obamacare death spiral. So far, it hasn’t happened. But their plan would near certainly move the individual market much closer to that direction.