Paul Krugman: California Death Spiral

The recent, large increases in health insurance premiums in California demonstrate the need for "comprehensive, guaranteed coverage":

California Death Spiral, by Paul Krugman, Commentary, NY Times: Health insurance premiums are surging — and conservatives fear that the spectacle will reinvigorate the push for reform. On the Fox Business Network, a host chided a vice president of WellPoint, which has told California customers to expect huge rate increases: “You handed the politicians red meat at a time when health care is being discussed. You gave it to them!”

Indeed. Sky-high rate increases make a powerful case for ... comprehensive, guaranteed coverage — which is exactly what Democrats are trying to accomplish.

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

Why the huge increase? It’s ... 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 ... take their chances and remain uninsured, the risk pool deteriorates, forcing insurers to raise premiums. This ... leads more healthy people to drop coverage, worsening the risk pool even further, and so on.

Now,... cash-strapped Californians have been dropping their policies or shifting into less-comprehensive plans. Those retaining coverage tend to be people with high current medical expenses. And the result, says the company, is a drastically worsening risk pool: in effect, a death spiral.

So the rate increases, WellPoint insists, aren’t its fault... Indeed,... there have been steep actual or proposed increases in rates by a number of insurers.

But ... suppose..., provisionally, that the insurers aren’t the main villains... Even so, California’s death spiral makes nonsense of all the main arguments against comprehensive health reform.

For example, some claim that health costs would fall dramatically if only insurance companies were allowed to sell policies across state lines. But California is already a huge market, with much more insurance competition than in other states; unfortunately,... competition hasn’t averted a death spiral. So why would creating a national market make things better?

More broadly, conservatives would have you believe that health insurance suffers from too much government interference. ... But California’s individual insurance market is already notable for its lack of regulation...

Finally, there have been calls for minimalist health reform that would ban discrimination on the basis of pre-existing conditions and stop there. It’s a popular idea, but ... a ban on medical discrimination would lead to higher premiums for the healthy, and ... more and bigger death spirals.

So California’s woes show that conservative prescriptions for health reform just won’t work.

What would work? By all means, let’s ban discrimination... — but we also have to keep healthy people in the risk pool, which means requiring that people purchase insurance. This, in turn, requires substantial aid to lower-income Americans so that they can afford coverage.

And if you put all of that together, you end up with something very much like the health reform bills that ... passed both the House and the Senate.

What about claims that these bills would force Americans into the clutches of greedy insurance companies? Well, the main answer is stronger regulation; but it would also be a very good idea, politically as well as substantively, for the Senate to use reconciliation to put the public option back into its bill.

But the main point is this: California’s death spiral is a reminder that our health care system is unraveling, and that inaction isn’t an option. Congress and the president need to make reform happen — now.