California Death Spiral
By PAUL KRUGMAN
NY Times Op-Ed: February 18, 2010
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 action. And they
show, in particular, that we need 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 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
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.
Now, what WellPoint claims is that it has been forced to raise premiums
because of "challenging economic times": 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: "Other
individual market insurers are facing the same dynamics and are being forced
to take similar actions." Indeed, a report released Thursday by the
department of Health and Human Services shows that there have been steep
actual or proposed increases in rates by a number of insurers.
But here's the thing: suppose that we posit, provisionally, that the
insurers aren't the main villains in this story. Even so, California's death
spiral makes nonsense of all the main arguments against comprehensive health
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, insurers compete mainly by trying to
excel in the art of denying coverage to those who need it most. And
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. In fact, the real point of
the push to allow interstate sales is that it would set off a race to the
bottom, effectively eliminating state regulation. But California's
individual insurance market is already notable for its lack of regulation,
certainly as compared with states like New York - yet the market is
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 as every health economist knows, it's also nonsense. For
a ban on medical discrimination would lead to higher premiums for the
healthy, and would, therefore, cause 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 on the basis of
medical history - 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
And if you put all of that together, you end up with something very much
like the health reform bills that have already passed both the House and the
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
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.
Hi. Here's the only logical follow-up to Krugman's analysis, mostly from
"Moving On." The second paragraph are my own thoughts. If you've been
on my list for a boyt you know I don't flatly endorse any, repeat any
organization or service. This one is critical for the nation and won't
without us. Here's the short message: -Ed
As politicians fret about the political risks of health care reform instead
of fixing our broken system, people are dying. It's time for Congress to
stand up to Big Insurance and their conservative allies and get health care
reform done, and done right.
Democrat panic and Republican determination to destroy everything by
stonewalling was pierced by citizen outrage, a week or so ago. It has
become a wedge, now joined by many in both houses of congress. It will
either be progressive or blunted by always hesitant politicians, without our
That's why I just signed up to join MoveOn's Virtual March for Real Health
Care Reform. The goal is to send a million messages to Capitol Hill on
Wednesday, February 24, the day before President Obama's big health care
summit with members of Congress.
Can you join in? It's easy. Just click here: