Are You Prepared for the “Death Spiral” in Health Insurance?

As you may have heard, the “death spiral” has been a hot topic in the healthcare industry for years. Many people are asking: What is the death spiral? And will it happen?

In short, the death spiral is the idea that rising premiums will lead to fewer people enrolling in health insurance plans, which in turn will lead to even higher premiums. This cycle could eventually lead to the collapse of the entire health insurance system.

What would a “death spiral” look like?

In a death spiral, the number of healthy people with insurance would decrease, leaving a higher percentage of sick people in the risk pool. This would make premiums increase even faster, causing even more healthy people to drop their coverage.

Here’s an example of how it could happen:

Insurance premiums increase by 10%.
As a result, 10% of healthy people drop their coverage.
This leaves a higher percentage of sick people in the risk pool, which causes premiums to increase by 20%.
As a result, 20% of healthy people drop their coverage.
This leaves an even higher percentage of sick people in the risk pool, which causes premiums to increase by 30%.

And so on.

Is a death spiral possible under the Affordable Care Act (ACA)?

The ACA was designed to prevent the death spiral by providing subsidies to help people afford health insurance. These subsidies are available to people with incomes up to 400% of the federal poverty level.

However, the ACA has been under constant attack by Republicans in Congress. In 2017, the Trump administration cut off payments to insurers that help reduce out-of-pocket costs for low-income people. This has caused premiums to increase for many people.

In addition, the Trump administration has allowed states to waive certain ACA requirements. This has made it easier for people to drop their health insurance coverage.

As a result of these changes, the death spiral is now a real possibility. If the ACA is not protected, it is likely that premiums will continue to increase, causing more and more people to drop their coverage. This could eventually lead to the collapse of the entire health insurance system.

What can you do to prepare for the death spiral?

There are a few things you can do to prepare for the death spiral:

Enroll in a health insurance plan now. If you are eligible for subsidies, you can get help paying for your premiums.
Make sure your health insurance plan is comprehensive. This means that it covers a wide range of services, including doctor visits, hospital stays, and prescription drugs.
Consider purchasing a high-deductible health plan (HDHP). HDHPs have lower premiums than traditional health insurance plans, but they also have higher deductibles. This means that you will have to pay more out-of-pocket for your healthcare costs before your insurance kicks in. However, HDHPs can be a good option for people who are healthy and don’t expect to have many medical expenses.
Save for your healthcare costs. If you have a high-deductible health plan, you will need to save money to cover your out-of-pocket costs. You can do this by setting up a health savings account (HSA). HSAs are tax-advantaged accounts that can be used to pay for qualified medical expenses.

The death spiral is a real threat to the health insurance system. If you are not prepared, you could be left without coverage when you need it most. By taking steps to prepare now, you can protect yourself and your family from the financial consequences of a death spiral.

If you have any questions about the ACA or health insurance, please don’t hesitate to contact a licensed agent. They can help you find a plan that meets your needs and budget.