# Is There a Death Spiral in Obamacare?

[Listen to or watch the recording](../media/media-2016-12-30-wkyt/recording.mp4)

**WKYT News at 6:30 on the CW Lexington · December 30, 2016**

Aaron Yelowitz discussed Affordable Care Act marketplace premiums, subsidies, consumer sorting across metal-tier plans, adverse selection, and possible changes to the ACA under the incoming Trump administration.

## Participants

- **Sam Dick:** Anchor and interviewer
- **Aaron Yelowitz:** Associate Professor of Economics, University of Kentucky; adjunct scholar, Cato Institute

## Related research

The interview does not identify a particular publication by name. A closely related contemporaneous publication from Aaron Yelowitz's ACA research portfolio is:

[Charles Courtemanche, James Marton, Benjamin Ukert, Aaron Yelowitz, and Daniela Zapata, “Early Impacts of the Affordable Care Act on Health Insurance Coverage in Medicaid Expansion and Non-Expansion States,” *Journal of Policy Analysis and Management* 36(1), 2017, 178–210.](https://doi.org/10.1002/pam.21961)

The University of Kentucky's Gatton College separately identifies this appearance as a December 30, 2016 discussion of the Affordable Care Act and “death spirals.”

## Transcript

> **Transcript note:** This transcript was generated from the recording and may be imperfect. The recording is the authoritative source.

**00:00:00 — Sam Dick:** And welcome back to *WKYT News at 6:30* here on the CW Lexington. For the first time in nearly a dozen years, Republicans will control all of Washington, and a repeal of President Barack Obama's signature legacy item, Obamacare, is a top priority heading into the new year. A new report shows that insurers increased premiums for Obamacare benchmark plans an average of 25% for 2017. But a new S&P Global Ratings analysis suggests that insurers have started closing the large losses that prompted those increases. Now, what happens in 2018 and beyond will depend on how and when President-elect Donald Trump and congressional Republicans replace Obamacare.

**News clip — speaker not identified:** I think health care will be better and cost less when Obamacare is gone. So why would we want to take three years to get rid of it?

**Sam Dick:** Next month, Republicans will immediately try to pass a budget. That process will allow them to repeal, perhaps, much of Obamacare.

**00:00:56 — Sam Dick:** To help us break down the news, Aaron Yelowitz joins us. He is an economics professor at the University of Kentucky. He's also an adjunct scholar with the Cato Institute. Aaron, thank you for being with us tonight. We appreciate it. S&P expects the recent hikes to be a one-time adjustment. Any concerns the premiums might rise in the future after those adjustments?

**00:01:15 — Aaron Yelowitz:** For 2017, premiums were hiked by 20% or more nationally. Here in Kentucky, premiums did rise quite a bit for the 200,000 individuals who purchase on Kynect or HealthCare.gov. For example, premiums went up by 31% for Humana and 29% for CareSource. Many people do receive subsidies, so, as a consequence, they're insulated from these premium hikes. For example, given the structure of the Affordable Care Act, if you choose the second-lowest-cost silver health insurance plan, the amount you pay out of pocket is pegged to your income. But back to your point about premiums rising in the future, there is a legitimate concern from the Affordable Care Act of what we would call a health-insurance death spiral.

**00:01:56 — Sam Dick:** Now, “death spiral” sounds pretty lethal. What does that really mean?

**00:02:00 — Aaron Yelowitz:** So, it's not *Star Wars*. It's here in this galaxy. As many viewers know, there's a range of health insurance plans you can choose from here in Kentucky. They range from less-generous bronze plans to more-generous gold or platinum plans, which have higher monthly premiums. For example, here in Lexington, there are 17 health insurance plans. There are five bronze plans, seven silver plans, five gold plans, and zero platinum plans. The bronze plans have deductibles of about $5,000. The gold plans have deductibles of about $1,000.

Who's going to choose those high-deductible bronze plans? The answer is, by and large, people who are healthy, who don't anticipate much health care during the course of the year, and want to save on premiums. Who's going to choose the more expensive gold plans? The answer is that, although you pay a higher monthly premium, if you're less healthy, you come out better in the longer run.

So those gold plans tend to attract less-healthy clientele. Here's where the term “death spiral” comes in. Those enrolled in gold plans tend to cost a lot of money, which means that the next year, when insurance companies are maintaining their bottom line, they have to raise premiums. What that, in turn, does is drive the healthy people who were in those gold plans out of them and into the silver or bronze plans. So, in a nutshell, when healthy people leave the more-generous plans, it tends to make premiums go up even faster.

**00:03:15 — Sam Dick:** In less than 30 seconds, to wrap this up: your crystal ball. What do you think will happen in 2017 with this Obamacare situation?

**00:03:22 — Aaron Yelowitz:** Well, we know that in the first 100 days, the ACA is on the radar for reform. There are two main things that I see. One of them is clearly the Medicaid program, which right now offers incentives for state governments to run it fairly inefficiently. There probably will be a discussion about block-granting that. What that means is that states will get a lump sum of money, and, as a consequence, they'd probably need to run it far more effectively.

The second thing is this death spiral, which we just talked about. Some of the most famous economists in the world have called that Obamacare's fatal flaw. The real issue, in a sense, is that when you can move so easily between bronze plans and gold plans, that basically is gaming the system and undermines financial stability. There are actually some common-sense reforms, in terms of restricting mobility, that could probably increase the stability of those plans.

**00:04:15 — Sam Dick:** Aaron Yelowitz with the University of Kentucky, thank you for joining us on this Friday night. We'll see what happens in 2017. Thank you. Happy New Year.

**Aaron Yelowitz:** Happy New Year to you too, sir.

**Sam Dick:** And you can join the conversation by leaving your comments on WKYT.com or on our Facebook page. Let us know. We want to know what you think.