Death Spiral in Health Insurance

Apparently death spirals are built into your health insurance plans. Here's the story from Paul Krugman:

"Here’s the story: About 800,000 people in California who buy insurance on the individual market — as opposed to getting it through their employers — are covered by Anthem Blue Cross, a WellPoint subsidiary. These are the people who were recently told to expect dramatic rate increases, in some cases as high as 39 percent.

Why the huge increase? It’s not profiteering, says WellPoint, which claims instead (without using the term) that it’s facing a classic insurance death spiral.

Bear in mind that private health insurance only works if insurers can sell policies to both sick and healthy customers. If too many healthy people decide that they’d rather take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This, in turn, leads more healthy people to drop coverage, worsening the risk pool even further, and so on."

Dr. Krugman gets it right on this issue again. I'd really like to get something done on health care. 39% increase in premiums? You can't expect healthy people to keep paying if cost trends of that nature continue, which appears very likely, as healthy people have an incentive to get out of the "risk pool," making said pool even less healthy, and raising premiums even more. Here's a link to the full article, a pretty good read, but the gist of it is posted above.