No pre-mature death spirals

Wendell Potter argues that just the threat of a ruling against the government in King will lead to a death spiral of premium increases on the Exchange for the 2016 benefit year.  He is wrong for two reasons.

What you probably have not heard is that regardless of how the Court eventually rules in King v. Burwell, your premiums will likely go up next yearsimply because the justices agreed to take the case in the first place

the nine justices are expected to vote within days of Wednesday’s hearing, the Court’s is not expected to announce its decision until June. That’s just how the high Court does things.

The problem for insurance companies is that by June, many if not most of them will already have told state and federal regulators how much they plan to charge customers for policies they will sell on the exchanges in 2016.

The first reason why he is wrong is that the June numbers are preliminary numbers.  Those numbers are not set in stone.  The second reason is if the subsidies are upheld, any uncertainty costs that appear on the 2016 Exchange gets eaten by the subsidy.  For the subset of people who are buying on Exchange without financial assistance and all people  buying off Exchange, they could pay slightly higher rates but on-Exchange subsidized buyers are protected by the subsidy structure. 

Mayhew Insurance submitted late spring/early summer rates in 2014 for 2015.  We then engaged in a three month back and forth with all relevant regulatory stake holders plus network construction to get our final, final, really truly final rates that went up on the Exchange for the 2015 open enrollment.  The rates that we sold at this fall were significantly different than the preliminary rates.

Insurance companies in states will file oh-shit the Supremes went boinkers rates.  They’ll set them as high as possible because it is always easier for the insurer to ask for a rate cut then a rate increase during the back and forth for final rates.  These rates will be based on a demographic risk pool that is extremely ill or likely to be ill.  Most actuarial firms can chew gum and punch their calculator at the same time, so there will also be a supplemental rate request for a pro-government King decision sitting on the shared drive ready to be filed thirty minutes after Legal finishes reading the decision.  The King decision is a material difference that justifies a rapid refiling no matter how it is decided.

So even assuming that King is favorably decided for the government, Mr. Potter is worried that consumers will pay more.  People who are off-Exchange aren’t protected by the subsidy structure.  People who are on the Exchange but don’t qualify for subsidies could pay more.  However, most people who are buying on Exchange are getting subsidies.  The subsidies are set up to put the Feds on the line for excessive cost growth.

A person’s subsidy is determined by a function of the difference between the premium cost of the second cheapest Silver in the region minus a percentage of that person’s family unit income as determined by federal poverty level (FPL).  The gap is the subsidy amount.   Someone at 101% FPL will pay 2% of their income.  Someone at 250% FPL will pay about 6% of income.  King does not change people’s cash income, it does not change the subsidy formula.  Once a person contributes their expected amount, the Feds pick up the rest.

So if the second Silver was, in an alternate non-goatee universe, priced at $221 for Ms. Doe, and she was subsidy eligible for $98 a month, in our universe with a favorable King ruling, that policy in Mr. Potter’s concern might be priced at $243 as a King uncertainty compensater.  However Ms. Doe’s expected premium payment is flat, but her subsidy is now $120 per month.

From the point of view of an individual, a favorable ruling for King  that keeps subsidies in all states can not create a death spiral.


49 replies
  1. 1
    Baud says:

    Insurance companies in states will file oh-shit the Supremes went boinkers rates.

    And that’s exactly what they should call it.

  2. 2
    mai naem mobile says:

    It still.blows my mind when I hear Scalias crap arguments on anything. He doesn’t even pretend to be consistent.

  3. 3
    OzarkHillbilly says:

    @mai naem mobile: But he does pretend to be rational.

  4. 4
    currants says:

    “just how the high Court does things” is just how MOST high courts handle it (usually on a pretty rigid schedule): the vote on its own doesn’t tell us enough. There’s the vote, sure, but a lot of wrangling takes place over the details that go into the decision, and decisions get studied for years–decades even–by lawyers and students (without even touching the implications). Also, all decisions are published opinions, so it has to be drafted, re-drafted, edited, approved/revised, fact-checked, cite-checked–all decisions, not just this one we’re interested. Takes TIME.

  5. 5
    Tissue Thin Pseudonym says:

    I looked at the health insurance offered by my new employer. It looks like complete crap. It says it’s the minimum policy necessary to be ACA compliant and it’s through a health insurance company I’ve never heard of. (Don’t have the paperwork with me right now to give the name.)

    I wish there was some way to get some other policy without paying back out most of the many I’m making.

  6. 6
    EconWatcher says:


    Scalia has always been right wing, but as an old man (49), I can remember a time when he was a somewhat interesting jurist.

    He would occasionally rule for criminal defendants when even liberals wouldn’t, for example, in insisting that the right to “confront” in the Constitution means that the accused and the accuser must actually be in the same room, so that the jury can see how they react to each other. (He pointed out that small children can sometimes be manipulated into molestation claims, and so he thought it important for the jury to see how the child would behave on seeing an accused parent, from whom the child may have been separated for a long time.)

    But that is so long ago. I would love to know how much Fox News Scalia now watches per week. Fox News played a very big role in turning my father from a pretty thoughtful and nuanced conservative into a raving wingnut, and I’ll bet it has something to do with it for Scalia too. Something about their pretty graphics, pretty girls, and sneering tone just turns people into a$$#oles, especially after constant immersion day after day.

  7. 7
    OzarkHillbilly says:

    @EconWatcher: I remember those days too. They were a long long time ago, and sometimes I think a galaxy far far away.

  8. 8
    WereBear says:

    @EconWatcher: But that is so long ago. I would love to know how much Fox News Scalia now watches per week. Fox News played a very big role in turning my father from a pretty thoughtful and nuanced conservative into a raving wingnut, and I’ll bet it has something to do with it for Scalia too. Something about their pretty graphics, pretty girls, and sneering tone just turns people into a$$#oles, especially after constant immersion day after day.

    I think it’s worthy of several doctoral theses. Not that they have scientists chained in the basement coming up with the tactics; they’ve been at it long enough to get their formula down pat.

    My only hope is that people from certain generations seem susceptible, while those younger are immune. To me, it indicates the Great Divide in the country that occurred while Fox Tolerators were still alive. The changes since then have been positive ones.

  9. 9
    Bobby Thomson says:

    @EconWatcher: that was just Scalia’s inner MRA talking.

  10. 10
    Bobby Thomson says:

    @WereBear: the youts are liberal because they are more diverse. According to the latest polls, young whites are still pretty retrograde.

  11. 11
  12. 12
    msdc says:

    Thanks for another informative, measured post, Richard.

    I have a question on a slightly different topic. A friend of a friend has gone on a rant against the ACA. He says that his old policy got canceled because it didn’t meet the ACA’s specifications, and that premiums have gone up 30% since he switched to an ACA-compliant policy. I suppose that’s possible if he fell into that category of healthy people who bought shitty, low-cost insurance (although if he’s anywhere close to my friend’s age, he’s got to be rounding 40 right about now).

    He also claims his coverage is worse under the new policy.This is starting to smell funny to me, as I thought the plans that got canceled under the ACA were those that offered poor coverage. But maybe it’s possible.

    He also says that a recent hospital visit for his son stuck him with a $6000+ bill, and that he has to pay the full freight on it. Now this really isn’t passing the smell test. Maybe this is just a smaller part of a truly astronomical hospital bill–in which case, the insurance is doing its job–but shouldn’t an ACA-compliant insurance have to cover more of that?

    But something else isn’t passing the smell test here either. I can understand why somebody in their 20s or early 30s, who doesn’t have any serious health problems and is banking on not getting hit by a bus, would buy shitty low-cost catastrophic coverage. But why the hell would somebody who’s rounding 40 and has two kids buy that plan?

    This guy is a working professional, and I’m sure he makes enough money that he doesn’t qualify for any subsidies. I get that he took a financial hit when he had to change insurance plans and that he’s not happy with the ACA. (Although technically that’s on the insurance company, right? His old, shitty plan would have been grandfathered in until the company decided to change or cancel it?) But the claim that he has worse coverage on the new policy that leaves him paying the full amount of the hospital bill… I was wondering if that’s possible, or if it smells as funny to you as it does to me.

  13. 13
    WereBear says:

    @Bobby Thomson: Perhaps. But in a local state college, I saw a large group of young people gathering for a low key non-political, fun, event; mostly white, yes, but very diverse in skin color — gay couples holding hands — a wonderful blending of attitudes and acceptance that would have NEVER been seen when I was their age.

  14. 14
    Germy Shoemangler says:

    @EconWatcher: And Justice Thomas listens to Rush Limbaugh every day.

    Is there a conflict of interest with Thomas, since his wife has been working tirelessly behind the scenes against the ACA? Or am I just being silly here?

  15. 15
    WereBear says:

    @Germy Shoemangler: You ARE being silly. Conflict of interest? This is all pertinent to Justice Thomas’s interests!

  16. 16
    Germy Shoemangler says:

    @WereBear: LOL You’re right. As soon as I typed it I understood how wrong I was… Anyway, isn’t Thomas snoozing through this whole thing anyway? He’ll wake up in time to vote with Scalia.

    Some here mentioned that Kagan was challenged about a conflict of interest.

    Another question: What was this about the lawyer saying it was written by women and minorities? Why didn’t the network evening news find that remark interesting?

  17. 17
    Punchy says:

    Insurance companies in states will file oh-shit the Supremes went boinkers rates.

    And somehow, these numbers will be the ones reported by the MSM as evidence that Obamacare is broken, overpriced, gay, out of touch with Reglur Mercunz, Muslim, and socialist. Empty fainting couches will be impossible to find.

  18. 18
    Tenar Darell says:

    @Baud: He really doesn’t give any f*cks anymore. He’s done what he wanted, now he’s just trolling.

  19. 19
    Tenar Darell says:

    @Baud: this was meant as a reply to Mai Naem Mobile.

  20. 20
    Omnes Omnibus says:

    @Tenar Darell: Just blame it on FYWP.

  21. 21
    Xantar says:


    There are bronze plans with a $6,000 deductible plus coinsurance, so it’s possible that your friend of a friend got stuck with that much in out of pocket costs. However, that would indicate that the hospital bill was pretty astronomical and that the insurance is doing its job (and also that he is terrible at analyzing risk which would make sense if he had a no-good insurance policy before the ACA).

    As to the rest, without knowing the details it’s hard to say. It does ring my bullshit alarm, though.

  22. 22
    msdc says:

    @Xantar: This is my sense as well. I think the guy’s leaving something out, most likely the part of his astronomical bill covered by his new insurance and/or the shitty terms of his old insurance. To say nothing of the stupid risk this father of two was taking pre-ACA, which should be causing him to fall down on his knees and kiss the feet of Obama and Pelosi in gratitude for forcing his family onto an insurance plan that won’t bankrupt him. But I would love to hear Richard’s take on this.

  23. 23
    japa21 says:

    It kind of surprises me that Potter would make this kind of error. Of course, he has been an avid anti-insurance company campaigner ever since he left Cigna. He also knows that most insurance companies will use any excuse they can to up rates. But overlooking the process to this degree surprises me.

  24. 24
    FlipYrWhig says:

    @msdc: Sounds like what he’s leaving out is what he’d be on the hook for paying under his old insurance.

  25. 25
    WereBear says:

    @FlipYrWhig: In addition, pre-ACA, his insurance rates for even crappy insurance might triple because of pre-existing conditions kicking in.

  26. 26

    I see that Obamacare has killed jobs right down to 5.5% unemployment. USSC better kill it before employers need to start raising wages in order to get workers.

  27. 27
    MomSense says:

    Anyone ever step back and just wonder why the hell we have had to go through years of drama, lawsuits, yelling, tri-corner hats, and BS over just trying to expand access to health insurance/care and some basic patient protections?

    This is insanity.

  28. 28
    Tenar Darell says:

    @MomSense: Yes. But this kind of insanity has worked before. It’s how massive resistance worked in the south post Brown v. Board… and worse its how white flight has worked, especially since Milliken v. Bradley, and even school choice is having its effects. This feels as if it is not so much a new tactic as it’s an adaptation of an older one.

  29. 29


    I’m starting to think that ODD (Oppositional Defiant Disorder) is way more prevalent in the adult population than anyone realizes. There are way too many you’re not the boss of me! people out there to make a collective solution work right now.

  30. 30
    WereBear says:

    @MomSense: They have created a situation wherein being decent human beings involves embracing what the Democratic Party advocates for.

    And they will choke on a curtain rod before they can do that.

  31. 31
    Ruckus says:

    Not necessarily. As @Bobby Thomson: states a lot of young whites get their news from the same place as their parents/grandparents. I’ve had under 30 people use faux as a news source on their phones trying to show me I’m full of shit. They think just like their parents/grandparents that if it’s on the news, it must be true and they don’t trust other sources because of that.
    The true crime of all of this is that we lost the fairness doctrine which made news programs have to tell the truth. Or at least attempt to and to reasonably correct it when they got it wrong. Other countries still have that ideal and it shows.

  32. 32
    Iowa Old Lady says:

    As I look at the so-called replacement “plans,” I see no legislative language and apparently no memory of how long and hard the Ds had to work to negotiate and pass the ACA in the first place. So vapor legislation that will magically appear.

    When they do mention specifics, it sounds like they want to keep the part of the ACA that everyone likes but get rid of the mandate and any taxes, so basically good stuff for free.

    What a bunch of babies.

  33. 33
    Ruckus says:

    A curtain rod with a roasted sparrow stuck on it.

  34. 34
    Edmund Dantes says:

    @msdc: illinois market sucks hard. Even silver plans are pretty crappy. 400+ a month premiums for 12K deductibles. Best silver is 480 for 3k. Majority of silvers all 10K plus.

    That’s a pretty big jolt to the system for someone used to catastrophic.

  35. 35
    MomSense says:

    @Tenar Darell:

    Of course you are right that this is how you try and nullify laws you don’t like but the sad part is that the ACA should help a lot of those Southern rural whites who hate it so much.

    @Mnemosyne (tablet):

    ODD with a side of paranoia.


    I was going to say curtain rod with a roasted sparrow on it but Tenar beat me to it!

  36. 36
    Calouste says:

    @Mnemosyne (tablet): A lot of things in America can be explained if you realize that for a significant portion of the population being told by their mom at age eight to clean up their room or eat their broccoli was such a traumatic event that it halted their emotional development completely.

  37. 37
    WereBear says:

    @Ruckus: Perhaps it’s a function of geography? I live in a red spot in a blue state and even our Republicans support gay marriage.

    You are right about the fairness doctrine. We need some standards for what we call “news” and penalties for breaking them. Seems like the sensible, civilized thing to do.

  38. 38
    WereBear says:

    @MomSense: My configuration was meant to evoke that they would rather just eat curtain rods :)

  39. 39
    MomSense says:


    Or impale themselves with a curtain rod.

  40. 40
    Ruckus says:

    It was. Will it come back? Maybe some day but for now there seem to be a lot of vested interests in our fear culture. Especially if that fear can be directed to those people and things that either help those directing (wealthy) or against those who have a very hard time getting out from under that fear (minorities).

  41. 41
    Ruckus says:

    That’s a nice sentiment.

  42. 42
    msdc says:

    @WereBear: Excellent point. And he doesn’t have to worry about getting denied coverage either.

    @Edmund Dantes: No doubt. But this guy has already been to the hospital, and it’s hard to imagine his old catastrophic plan offering better coverage than even a bronze (especially if it wasn’t ACA compliant). He may have sticker shock now, but he’s also getting the benefits he paid those higher premiums for.

    I wonder how thoroughly fucked he’d be if the hospital visit happened under his old plan.

  43. 43
    Tenar Darell says:

    @MomSense: I wish I could take credit for that sparrow on the curtain rod, but it was Ruckus with that zinger. Much to play with in this vein, like sticking your tongue to metal out in cold weather or licking electrical sockets or playing with hair dryers near a sink or tub of water.

  44. 44
    WereBear says:

    @Tenar Darell: Actually, it references a marvelous Cleek observation:

    Your average conservative would be perfectly happy living in a cardboard box under a highway overpass, roasting a sparrow on a curtain rod, if he knew someone else had neither box nor curtain rod.

    Somewhat paraphrased.

  45. 45

    @msdc: It really depends on a lot of different things. I would really need to see actual numbers and talk to the guy to determine what he values as “better” coverage — maybe the nearby hospital was in network and now it is out.

    As for the price increase, that is plausible as PPACA plans are community rated, and that is probably a 20% premium price increase over underwritten plans.

    The rest of the details smell odd to me, but that is all

  46. 46
    msdc says:

    @RICHARD MAYHEW: OK, thanks.

    I assume the price increase and all the other numbers he’s sharing are correct, I just have some serious doubts about what he’s leaving out. Mostly I have to wonder what kind of plan he had before.

  47. 47
  48. 48
    JGabriel says:


    But he does pretend to be rational.

    Not very well.

  49. 49
    JGabriel says:

    @Germy Shoemangler:

    Is there a conflict of interest with Thomas, since his wife has been working tirelessly behind the scenes against the ACA? Or am I just being silly here?

    There is, but good luck getting Thomas to recuse himself over it. For SCOTUS Justices, it’s up to their own discretion whether to recuse or not. They don’t have any recusal guidelines they have to abide by.

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