Goodman, who heads the Goodman Institute for Public Policy Research in Dallas, says a death spiral exists if there is no premium the insurer can charge that will allow it to cover its costs. If it is experiencing losses, it may try to recover by raising the premium. But eventually there will be no one left in the pool other than the costliest enrollees -- who cannot possibly pay the premiums needed to cover the cost of their care. The insurer can avoid this painful process by cutting its losses and leaving the market early on.
A study by Avalere predicts that next year more than one-third of the exchanges will have only one insurer left. More than half the exchanges will have no more than two. "We were promised competition; what we are getting instead is monopoly," he said.
Both health economists point to a problem on the demand side of the market: too many people are waiting on the sidelines while they are healthy and signing up for insurance only after they get sick.
Reinhardt says that Switzerland and Germany have similar systems, relying on competition among private insurers. But the Swiss and the Germans "brutally enforce the mandate." They "make young people sign up and pay." "We are too chicken to do that," he says and adds, "We give them a mandate penalty that is lower than the premium. And we tell them, if you're really sick, we'll take care of you anyhow."
Goodman says an even bigger source of trouble is on the supply side. "Health plans are being allowed to dump their sickest, most costly enrollees on their rivals with impunity." As a result, "insurers face perverse incentives to attract the healthy and avoid the sick."
So what can be done?
Goodman helped draft a proposal by Rep. Pete Sessions (R-TX) and Sen. Bill Cassidy (R-LA) that would deter people from gaming the system in a manner similar to what is done in Medicare Part B and Part D. Anyone who does not sign up when first eligible would face financial penalties in the form of higher premiums.
The bill would also insure that health plans always receive actuarially fair premiums. So if a new enrollee has expected costs of, say, $100,000 the plan would get $100,000 in premiums. The enrollee would pay a community rated premium – just like everybody else. The balance would be paid by the previous insurer.
About the Goodman Institute
Led by Dr. John C. Goodman, the Goodman Institute for Public Policy Research (GIPPR), is a nonprofit, nonpartisan public policy research organization that promotes private alternatives to government regulation and control, solving problems by relying on the strength of the competitive, entrepreneurial private sector. Topics include reforms in health care, taxes, and entitlements. Visit www.goodmaninstitute.org.
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SOURCE Goodman Institute