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Is Obamacare heading for a 'death spiral'?

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Plans to allow people to keep their individual health insurance policies -- even if they don't meet the requirements of the federal Affordable Care Act -- are not likely to send new health insurance marketplaces into a so-called "death spiral," according to a new study by the RAND Corporation.

Although three options put forward to help people keep their old plans all would cause some disruption of the risk pools that are important to the insurance exchanges, none of the changes would be severe enough to threaten their viability, according to the study.

An option adopted by President Obama to allow state insurance commissioners to decide whether to extend old insurance policies is the least disruptive of the three policies examined by the report. The study predicts the president's action will have only minimal effect on enrollment and premiums.

The most disruptive of the alternative proposals would both allow people to keep their old health plans and allow others to buy the policies as well.

That option would lead to moderate price hikes and sharply lower enrollment in the new marketplaces, substantially increasing federal spending on subsidies for enrollees.

"Our analysis shows that plans to allow individuals to keep their old policies will not threaten the short-term viability of the new individual insurance marketplaces," said Evan Saltzman, the study's lead author. “However, the strategies put forward may increase federal spending and increase prices in the new individual marketplaces.”

After criticism arose over some consumers in the individual market losing their existing health insurance plans, President Obama in November announced rules that allow current nongroup enrollees to keep their existing health plans, provided their state's health insurance commissioner permits such actions.

Two alternative proposals also were put forward in the Congress, but have stalled.

  • One would require insurance companies to continue to offer non-compliant individual health plans indefinitely, but not allow new enrollees into these plans.
  • A second bill would allow the non-compliant plans to continue and to be offered to new enrollees in the future.

Because each of the proposals would divert many young and healthy people away from the new health insurance marketplaces, there has been concern the changes could lead to a self-reinforcing cycle of increasing premiums and enrollment drops.

All this, say critics, will ultimately lead to the implosion of the marketplaces.

RAND researchers estimated how the three approaches could affect the new marketplaces for individuals under the Affordable Care Act.

All three of the proposals are likely to increase the overall number of people with health insurance because many non-compliant insurance policies are likely to be less expensive than those offered in the new health insurance marketplaces.

However, many of the non-compliant policies would likely offer fewer benefits than policies offered in the new marketplaces.

Opening the non-conforming plans to new enrollees would have the most-detrimental effect on the new insurance marketplaces, the study notes.

Such a strategy would likely raise premiums in the marketplaces by as much as 10 percent and decrease enrollment by 3.2 million nationally.

-- Brett Grodeck

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