“Insurance Death Spiral” in ObamaCare

Who brought the term “Insurance Death Spiral” into the ObamaCare debate? Was it Sarah Palin?  Rush Limbaugh?


Nope.  The term comes from professional actuaries at the Centers for Medicare and Medicaid Services (CMS) a government agency, run by an Obama appointee.  Their publication “Estimated Financial Impacts of the Patient Protection and Affordable Care Act” discloses some of the discrepancies between ObamaCare hype and grim reality.

We all remember when the establishment media reported triumphantly, that the Congressional Budget Office, (CBO) “scored” ObamaCare as reducing the deficit.  President Obama hyped it as “the largest deficit reduction bill in over a decade.”

Not so widely reported were the budgetary gimmicks Congressional leaders contrived with one goal in mind: to trap the CBO into projecting deficit reduction.  Total revenue to the government during the first ten years had to exceed total expenses.  They accomplished this in part by scheduling several tax and revenue functions to begin in the first or second year, while deferring most functions that will cost money to years 4 – 10.

CBO scored CLASS as “savings” during the first decade because it begins collecting premiums in 2011 but won’t pay any benefits until 2016.

The CMS review describes CLASS as a voluntary insurance program. People who join the program must pay premiums for at least five years to become eligible for cash benefits in the event they become impaired and need in home living assistance services or long term care in an institution.

CMS estimates that from 2011 to 2015 CLASS will collect $25 Billion in premiums while paying out $0 in benefits. Then, from 2016 – 2019 it will collect $13 Billion more in premiums than it pays out in benefits.

But, CMS warns, in later years CLASS will pay out more than it collects in premiums because:

  • For persons earning less than Federal Poverty Level income (FPL) the premium will be only $5 per month.
  • The program is subject to what insurance professionals call “adverse selection,” meaning that people with health problems who believe they are at greater risk of eventually needing in-home or institutional care are more likely to participate than people in better-than-average health.

In order to overcome the costs of adverse selection and the $5 premium and remain solvent and able to pay benefits, CLASS will have to set high premiums, which will further discourage persons in better health from participating, thereby leading to even more premium increases. Eventually, the premiums will become so high nobody, not even those at greatest risk, will buy it. Quoting from the CMS review:

This effect has been termed the…”insurance death spiral.”

Even though the legislation says CLASS is to support itself, without government subsidy the actuaries at CMS conclude that the program will go broke without subsidies.   Like Social Security, Medicare, and Medicaid, CLASS is a looming financial time bomb whose increasing costs will outpace revenues.

CLASS has served it’s immediate political purpose.  It helped secure a propaganda advantage from the positive CBO score.  Thus, even though very few Americans know anything about CLASS, it was part of the campaign to pass ObamaCare, a giant step toward the progressive vision of government as the sole provider of health care to every citizen.

Obama and the Democrats will deal with all the unsustainable government programs by kicking the painful and inevitable task of unwinding and phasing them out down the road to some future President.

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