The Obamacare ‘Death Spiral’

Justin Haskins Heartland Institute
Published November 25, 2015

Consumer Power Report #483

The health care industry is still recovering from news UnitedHealth Group (UHG), the largest U.S. health insurance company in terms of enrollment, is considering pulling out of all Obamacare health insurance exchanges across the nation in 2017.

The news came as UHG announced it was downgrading its earnings forecast for 2015 by $425 million, a move the company suggested was connected to losses linked to the Obamacare exchanges.

As reported by The Wall Street Journal, UHG CEO Stephen Hemsley said in response to a question about whether UHG would be willing to take another loss in the Obamacare exchanges in 2017, “No, we cannot sustain these losses. We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself … [W]e saw no indication of anything actually improving.”

UnitedHealth’s Obamacare troubles are not unique. Many analysts believe other large health insurance companies, such as Aetna and Anthem, could also face tough times in the coming years due to the increasingly large number of sick people joining the Obamacare exchanges.

Because the Affordable Care Act (ACA) does not ordinarily allow insurance companies in the exchanges to charge different rates based on the health of the applicant or to deny coverage due to pre-existing conditions, countless Americans in poor health are joining exchanges and taking advantage of the subsidies offered through the marketplace, which has put health insurance companies in a very precarious financial situation. Insurers want to sell their plans in the Obamacare exchanges to take advantage of the larger pool of Americans now able to afford health insurance because of government subsidies, but insurers also know that if an increased number of healthier people choose not to sign up for health insurance, the costs related to sicker enrollees will far outweigh the benefits of being in the exchanges.

The Obama administration and Democrats understood this scenario was likely to occur when formulating ACA, and their answer to this predictable problem was to force all people to have health insurance using a “fine” as punishment for those who chose not to be covered with plans that met government-established standards. Younger, healthier people would choose to buy health insurance rather than pay a fine, Democrats reasoned, and this would help offset the costs associated with insuring a greater number of sicker people.

But many people are simply choosing to pay the fine, and many uninsured young people, due in part to a sluggish economic recovery, have been able to attain an exemption from the Obamacare penalty for not earning enough money. The current maximum fine for 2016 is either $695 or 2.5 percent of taxable income – whichever is greater – for an individual who remains without qualifying coverage for 12 months.

Although $695 isn’t chump change for a lot of lower-income Americans, it’s still far less than what it would cost many of them to actually buy health insurance. The reality is the penalty just isn’t large enough to force a lot of people to purchase insurance they don’t want, but increasing the penalty at this point would be politically impossible and wildly unpopular.

Without a clear incentive to sign up for an expensive health insurance plan, many healthy Americans are choosing to go without health insurance or to purchase a non-qualifying health insurance policy that covers only the costliest procedures. This means insurance companies are stuck with an ever-worsening ratio of sick customers to healthy customers, causing businesses such as UHG to consider leaving the Obamacare exchanges completely in hopes they can find a way to succeed in the health insurance marketplace without having access to people who are eligible for Obamacare subsidies.

John C. Goodman, president of the Goodman Institute for Public Policy Research and a renowned health care expert, says UHG’s decision could “signal the possible beginning of a death spiral” for Obamacare.

“Most of the insurers are losing money,” said Goodman in a recent interview with Consumer Power Report. “They can only hope to survive by raising premiums and narrowing their networks. But this will cause the healthiest enrollees to drop out. That will cause another round of premium increases, after which the pool will become even sicker and costlier. Eventually we will get the insurances equivalent of bankruptcy.”

The Obamacare system as it currently exists appears to be heading down a completely unsustainable road, but before conservatives and big-government opponents break out the celebratory champagne, a few considerations must be taken into account.

First, the Obamacare penalty is going to continue to increase, and it will eventually force more healthy Americans to choose purchasing insurance. The real issue is whether health insurance companies are willing and able to weather the Obamacare storm long enough to allow the number of healthy consumers on the Obamacare exchanges to grow.

Second, if the real goal of Obamacare is to expand the power of government, as many free-market advocates speculated at the time ACA passed, then a death spiral for Obamacare could ultimately be a success story for the Democrat Party. The more health insurance companies try to earn a profit by removing themselves from Obamacare programs, the greater the opportunity will be for federal and state government agencies to fill the void left behind by insurance companies through government programs.

To some extent, this concern has already begun to rear its ugly head through Medicaid expansion. According to the Centers for Medicare and Medicaid Services, there are now more than 72 million Americans enrolled in Medicaid or the Children’s Health Insurance Program, a figure that’s 23 percent greater than it was in 2013. Combined Medicare and Medicaid enrollment figures now top 120 million nationally, about 38 percent of the total population.

If the current trends continue, Obamacare as we know it may collapse under its own weight, but in its place could emerge something very similar to the single-payer health care system President Barack Obama and many of his Democrat colleagues desired in the first place.

— Justin Haskins



More than a quarter million Louisiana residents will soon be eligible for health coverage when Gov.-elect John Bel Edwards … fulfills his promise to expand Medicaid.

Louisiana is just the latest example of a state that has changed its tune on the federal program. Only unlike other states where a Republican-held legislature inevitably came around to expansion, the shift in Louisiana is a remarkably rare instance where a Democrat won control of the governor’s mansion and transformed the health care politics of the deeply red state essentially over night. …

Edwards took a strikingly different tone during a press conference Sunday. The day after he defeated Sen. David Vitter (R) in the runoff for governor he promised that his administration “will expand Medicaid as soon as we can.”

“The expansion of health care coverage for working families is among the highest priorities,” Edwards said Sunday according to a report in the Times-Picayune. “It’s something I’ve been working on for three years, and I never once during this campaign shied away from that particular issue.”

Louisiana would join 31 states including the District of Columbia that have already extended their state’s Medicaid coverage. Indications are that Edwards plans to move fast.

SOURCE: By Lauren Fox, Talking Points Memo


Pfizer’s blockbuster $160 billion merger with Irish pharmaceutical maker Allergan is stoking the partisan debate on corporations that move their headquarters overseas to lessen their U.S. tax bills – with Democrats like Hillary Clinton quickly condemning the deal while Republicans called it a symptom of a broken tax code.

The deal “will leave U.S. taxpayers holding the bag,” Clinton said in a statement Monday, calling on Congress to limit corporations’ ability to use the tax-limiting maneuver known as an inversion.

Democratic primary rival Bernie Sanders called on the Obama administration to block the deal, and while the White House didn’t go that far, spokesman Josh Earnest accused Republicans who refuse to support limits on inversions of being “bought and paid for” by big business.

The proposed merger would be the biggest inversion ever and create the world’s largest pharmaceutical company. It would let Pfizer shift its legal corporate residence to Ireland to lower its adjusted tax rate to between 17 and 18 percent, down from Pfizer’s current 25 percent effective rate.

SOURCE: By Katy O’Donnell, Politico


Touting the possibility of more choices for patients, a House committee Thursday began a renewed effort to revamp regulations in the health-care industry.

The House Select Committee on Affordable Healthcare Access approved three bills, including a long-debated idea about eliminating what is known as the “certificate of need” process for hospitals. That regulatory process, which often spurs legal fights, requires the state to sign off before hospitals can be built or expanded or before certain programs can be added.

The hospital industry’s focus on the issue was evident during Thursday’s meeting. A coalition of public and teaching hospitals raised concerns about eliminating certificates of need, while the for-profit HCA hospital chain endorsed the proposal (HB 437).

SOURCE: By Jim Saunders, The News Service of Florida


A task force appointed by Gov. Robert Bentley today recommended that the governor and the Legislature find a way to provide health insurance for Alabamians without coverage.

The Alabama Health Care Improvement Task Force approved a recommendation that said the biggest obstacle in improving health is the “coverage gap that makes health insurance inaccessible to hundreds of thousands of Alabamians.”

The majority of that group are working people who earn too much to qualify for Medicaid but don’t have private insurance, according to the Task Force statement.

It said expansion could provide coverage to about 290,000 Alabamians, including 185,000 who are working.

The recommendation does not specifically call for Medicaid expansion under the Affordable Care Act. But a two-page statement attached to the recommendation describes benefits that would come with expansion.

The Task Force recommended that the governor and the Legislature “move forward at the earliest opportunity to close Alabama’s health coverage gap with an Alabama-driven solution.”

SOURCE: By Mike Cason,


A measure to contain out-of-network health care costs has been advanced by a New Jersey Assembly committee.

The bill requires doctors and hospitals to disclose in advance if their services aren’t covered by a patient’s insurance network.

That will prevent surprise bills, said Maura Collins Gru of New Jersey Citizen Action, but the legislation won’t apply to about 70 percent of insurance plans in the state that are self-funded and federally regulated.

“Those consumers who are covered by a plan that does not opt in will now have the right to go to arbitration, and cannot have a provider send them to collection unless that provider invokes arbitration,” she said.

SOURCE: By Phil Gregory, Newsworks