What the Heck Is a Death Spiral?

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President Trump says variously that Obamacare is dead, failed, broken, and in a “death spiral.” But as Jon Chait points out, “death spiral isn’t just a term people who hate Obamacare get to use to predict that the law is going to fail because they hate it.” It has a specific meaning, and Trump’s own administration agrees with the CBO that Obamacare isn’t in a death spiral.

But what is a death spiral, anyway? It’s pretty simple. Suppose you have a health care market with five people in it. Their average annual medical expenses are $1, $3, $5, $7, and $9:

The average medical expense is $5, and in our fantasy world insurance companies don’t need to make a profit. This means our five customers each pay $5 for their health insurance. But Ariel thinks this is too much, because she hardly ever sees a doctor for anything. So she drops out:

Now there’s four people left, and the average premium goes up to $6. But this is now too rich for Banquo, who was willing to take a bit of a hit in order to reduce his risk, but not that big a hit. So he drops out too:

Three people are left, and now Cassius is fed up. His premiums keep going up, and at this price he feels like he’s hugely overpaying for the care he gets. So he drops out too:

And here’s where we end up. Desdemona and Edward will probably keep getting insurance, but it’s hardly insurance at all anymore. They’re both paying very nearly what their care would cost them if they just handed a pile of Krugerrands directly to their doctors. In all, 60 percent of the market has dropped out and the other 40 percent is barely getting any benefit. And the insurance company is probably not doing so well either. By the time we get to this point, they might decide to abandon the market entirely, leaving Desdemona and Edward out of luck too.

That’s a death spiral. That’s what dead, failing, and broken mean. It’s not happening with Obamacare now, and it won’t happen in the future unless Trump and his fellow Republicans deliberately sabotage it.


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