Study: Obamacare ‘Death Spiral’ Inevitable as Young People Forgo Insurance To Save Money

By Alissa Tabirian | August 20, 2013 | 3:32 PM EDT

(AP photo)

( – A new study predicts that implementation of Obamacare’s individual mandate will result in a “death spiral” for the program because it incentivizes young people to skip purchasing health insurance in favor of paying a penalty that leaves them better off financially.

The 18-34 age group “must purchase health insurance on the exchanges in order to ‘cross-subsidize’ people who are older and sicker,” according to David Hogberg, health care policy analyst for the National Center for Public Policy Research. “Without the young and healthy, the exchanges will enter a ‘death spiral’ where only the older and sicker participate and [the] price of insurance premiums will increase precipitously.”

The study, released this month entitled, “Why the ‘Young Invincibles’ Won’t Participate In The ObamaCare Exchanges and Why It Matters,” finds that next year, single young people without children who “tend to be healthier and use less medical care," will have a financial incentive to opt out of buying health insurance on the exchanges.

They will save money by paying the resulting penalty, “$95 or one percent of income in 2014, $325 or two percent of income in 2015, and $695 or 2.5 percent of income in 2016 and thereafter,” whichever is greater.

“Over 3.7 million individuals will pay at least $595 out-of-pocket for a Bronze plan, meaning that they will save at least $500 if they decline insurance and pay the fine. About 3 million individuals will save at least $1,000 if they go the same route,” the study says.

The “death spiral” is the result of young people leaving the Obamacare insurance pool, which would lead to “‘adverse selection’ in which insurance is only attractive to those who are generally older and sicker.”

“Insurance prices will rise to cover their costs,” insurers will close down their business due to lack of profit, and the decrease in competition will lead to “even higher insurance premiums,” the study predicts.

The catalysts, according to Hogberg, include Obamacare's community rating, in which “young people have a reduced incentive to buy insurance since they will pay a premium that is above the market rate,” and its guaranteed issue, in which “an insurer must sell a policy to a consumer anytime.”

As a result, “those most likely to have small claims amounts – men – comprise a much larger percentage of those with substantial financial incentive to avoid the exchanges,” Hogberg reports, adding that young people’s savings from opting out of healthcare could then be used to pay for rent, groceries and transportation.

The study cites Kaiser Family Foundation data that shows “16 states and Washington, D.C. are setting up their own exchanges, 27 states have decided to let the federal government run their exchange, and seven states are setting up a ‘hybrid’ exchange in which the state and federal government share authority.”

“The irony is that one of the purported goals of Obamacare was to reduce the amount of people who are uninsured. The exchanges, though, may only increase their number,” Hogberg concludes.