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Wednesday
May272015

Krugman Wrong Again? Death Spiral Rears Its Head

In a new National Policy Analysis, I examine whether predictions of an insurance “death spiral” on the ObamaCare exchanges have been proven wrong.  

The first sign of a death spiral is insurance companies requesting big premium increases, usually in the range of at least 20 percent.  However, that didn’t happen on the exchanges in 2015.  Here’s Paul Krugman on that:

“There is no death spiral: On average, premiums for 2015 are between 2 and 4 percent higher than in 2014, which is a much slower rate of increase than the historical norm.” The lack of death spirals is one thing that “should inspire major doubts about [conservative] ideology.” According to Krugman, those who made predictions about death spirals aren’t admitting their errors but “pretend[ing] that [they] didn’t make the predictions [they] did.” This is serious stuff since refusing “to accept responsibility for past errors is a serious character flaw in one’s private life. It rises to the level of real wrongdoing when policies that affect million of lives are at stake.”

As I note in my NPA, “who says that a prediction of a death spiral is completely wrong if a death spiral doesn’t occur immediately? Indeed, while I personally expected the death spiral to begin in 2015, there is no rule saying that it always happens right away.”

Going into 2015, insurers expected that most of the losses they took on the exchanges would be covered by an ObamaCare program known as the “risk corridor.”  Under this program, taxpayers would help offset insurer losses.  As such, there was little incentive for insurers to raise premiums if the medical claims they paid exceeded what they received in premium income.

But now that Congress has stopped the risk corridor from handing out taxpayer money, insurers are starting to ask for hefty premium hikes going into 2016.  For example:

  • Five insurance companies on Oregon’s exchange are proposing average premium increases ranging from 25.6 percent to 52 percent. 

  • In Tennessee, Blue Cross/Blue Shield is asking for an average increase of 36.6 percent and Community Health Alliance is proposing a 32.6 percent increase. 

  • In New Mexico, Health Care Service Corp. is requesting a premium hike of 51.6 percent.

The death spiral appears to be rearing its head.  Of course, these could be just flukes. We’ll know more in the weeks ahead as more companies release their requests for premium increases.  But, as I say in the NPA, “at this point, the one thing that is certain is that it is much too soon for ObamaCare proponents to say that the death spiral prediction is wrong. To do so is to jump the gun. I wonder if Paul Krugman regards that as a ‘serious character flaw’… or just stupidity?”

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