One Key Thing No One Knows About Obamacare

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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