Friday, December 20, 2013

Obamacare Officially Enters Its Death Spiral

The built-in fatal flaw in Obamacare was the requirement that young, prosperous and healthy enroll and overpay and fund the subsidies that would drive down the price for everyone else. It isn't happening. 
As problems continue to plague the rollout of President Obama's health care law despite improvements to the federal website, one issue that continues to loom is the possibility of the dreaded “death spiral.”

The term “death spiral” refers to an unraveling of the individual market if insurers are stuck with a disproportionate number of older and sicker enrollees with high medical claims without a sufficient number of younger and healthier participants to offset the costs.

Though the Department of Health and Human Services hasn't yet released a demographic breakdown of those who have picked a plan through Obamacare, early data from a handful of states has suggested that the risk pool has been disproportionately older.
Obama has now taken the short term, politically less unpopular step of postponing the individual mandate. By postponing the individual mandate he has pushed Obamacare into the death spiral. 
1. The individual mandate includes a "hardship exemption." People who qualify can either ignore the individual mandate altogether or purchase a cheap, bare-bones catastrophic insurance plan that's typically only available to people under 30.
2. According to HHS, the exemption covers people who "experienced financial or domestic circumstances, including an unexpected natural or human-caused event, such that he or she had a significant, unexpected increase in essential expenses that prevented him or her from obtaining coverage under a qualified health plan."
3. Today, the administration agreed with a group of senators, led by Mark Warner of Virginia, who argued that having your insurance plan canceled counted as "an unexpected natural or human-caused event." For these people, in other words, Obamacare itself is the hardship. You can read HHS Secretary Kathleen Sebelius' full letter here. HHS's formal guidance is here.
In summary, Obama has declared Obamacare a "hardship."


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