Echoing a report issued last month from the Kaiser Family Foundation, Ezra Klein says that the projections of significant adverse selection in the Obamacare exchange pools are vastly overblown. Indeed, Klein even claims that “the risk of a ‘death spiral’ is over.” But a closer look at Klein’s reasoning—laid out in an eleven-point blog post—should leave readers unconvinced.
Enrollment data show that the composition of Obamacare enrollees is older than the Obama administration and the health care law’s backers had anticipated, a point that Klein concedes. Faced with this fact, Klein tries to persuade readers—and perhaps even himself—that the health status of enrollees, not age, is a more telling predictor of an insurance pool’s viability. Quoting the report from Kaiser, Klein repeats, “[T]he health mix of ACA enrollment is much more important than the age mix.” That may well be true. But the enrollment data suggest that the health mix in the Obamacare exchange pools is far from ideal.
Inexplicably, Klein seems to say as much in his very next point, writing that “people are opting for reasonably generous plans.” Drawing from Jonathan Cohn’s recent blog post, Klein points to the popularity of silver-level plans, which represent 60 percent of all plans sold to date through the Obamacare exchanges. In fact, the silver-level plans are three times more popular than the cheaper bronze-level plans and sixty times more popular than the cheapest catastrophic-level plans, which are available only to enrollees under 30 years old.
Why would someone opt for a silver-level plan over a cheaper bronze or catastrophic-level plan? The most plausible explanation is that the enrollee anticipates incurring significant medical expenses over the coming year, which is to say that he’s not healthy. In theory, Klein could counter by arguing that the sickest enrollees would pick pricier and more comprehensive gold and platinum-level plans. Those plans represent just 13 percent and 7 percent of the Obamacare exchange market, respectively. But there’s a reason why silver-level plans are especially appealing to the unhealthy.
Obamacare subsidizes low-income Americans in two ways. First, anyone with an income at or below 400 percent of the federal poverty level is technically eligible for a subsidy to offset the price of his health insurance premium, although in practice, those subsidies generally aren't available to the young, as a recent study by the 2017 Project reveals. Moreover, Americans earning under 250 percent of the federal poverty level are also eligible for cost-sharing subsidies, which are used to reduce enrollees’ annual out-of-pocket medical expenses. There’s a catch, though: cost-sharing subsidies are only available to Americans who have enrolled in a silver-level plan. Americans who select a gold or platinum plan are not eligible for cost-sharing subsidies.
A low-income American with known health risks and routine medical expenses (say, a diabetic) may conclude that the silver-level plan—complete with cost-sharing subsidies—is the best choice on the Obamacare exchange, even compared with gold or platinum-level plans. The popularity of silver-level plans and the low demand for bronze-level plans—which were supposed to attract the “young invincible” bloc that is crucial to Obamacare’s success—should give anyone pause before declaring the “death spiral” dead.