Healthcare Premiums: The Death Spiral of Rising Prices

Release Date
January 11, 2017


Healthcare Politics & Policy

Dr. Brian Blase explains why healthcare premiums are rising and insurers are leaving the healthcare exchanges set by the Affordable Care Act. The result? “Death spiral.”
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Bob Ewing: Another thing that’s been in the news a lot lately is talk about premiums, about premiums going up. What exactly do we mean by premiums, and why are they going up?
Brian Blase: Premiums are the price that people pay for health insurance, and you’re right, I mean in the fall, certainly in the summer stories came out from states that premiums were going up pretty significantly. The average premium increase for 2017 in these exchanges is about 25%.
Now why are premiums going up? Well, the exchanges have enrolled a lot fewer people than expected, less than half the number of people that expected. Relatively young, healthy, middle class people aren’t enrolling in numbers that were expected, so actually 2/3 of enrollees in the exchanges have income below 200% of the poverty line. 200% of the poverty line is about $24,000, and they qualify for very large subsidies. They qualify for a subsidy that reduced their premium; they qualify for a subsidy that reduces the deductibles. Unless people qualify for both of those subsidies, they’re not purchasing the coverage to the degree expected.
Premiums are also affected by, there was a backend subsidy program put in to help the law’s exchanges in the first three years they took effect, and those subsidies are going away. What we’ve seen are large premium increases, and also a lot of insurers withdrawing from the markets. Three major insurers, Aetna, Humana and United Healthcare, have largely withdrawn from the markets. Next year, one third of US counties are only going to have a single insurer participating in the exchanges.
You have rapidly-increasing premiums, you have insurers withdrawing from the exchanges, something that economists tend to refer to as a death spiral, is happening in many states.
Bob Ewing: A death spiral?
Brian Blase: Yes. Not to be confused with the Death Star. The death spiral.