Despite major Obamacare problems, a "death spiral" is unlikely

As the Obama administration works on improving HealthCare.gov, the dysfunctional Obamacare website, the threat of a so-called "death spiral" hangs over them.

HealthCare.gov serves as the portal to the new Obamacare insurance marketplace for consumers in 36 states. If those consumers continue having trouble accessing the marketplace, as CBS News business analyst Jill Schlesinger recently put it, "there is a huge risk this plan goes down the tubes."

The success of the marketplace depends on sufficient enrollment -- particularly the enrollment of younger, healthier people. Given all the problems with HealthCare.gov, there's concern that only the sickest, most motivated consumers will persevere through the enrollment process. Insurers would then, in theory, pass on the costs of that sicker market to consumers in the form of higher premiums. That would prompt even more healthy people to leave the market, creating the dreaded "death spiral."

"It looks to me like we are going to end up in what's called an insurance death spiral, because if the young healthy people don't pay more for their insurance, and you have older sicker people, it's going to go down, down," Sen. John Barrasso, R-Wyo., said on Fox News Tuesday. "And then you are looking at, to me, a massive government bailout of this entire health care law."

The government will have to fix HealthCare.gov to hold up the new marketplace, but there are other elements in the law that will prevent the "death spiral" from kicking in. The system of subsidies for consumers on the market, along with mechanisms like "reinsurance" and "risk corridors" designed to stabilize the market, should keep premiums from spiraling out of control.

Perhaps most critically, consumers have until the end of March to actually join the new marketplace.

"If the website gets working by around Nov. 30 as they've suggested, that leaves plenty of time to do outreach and get people signed up," Larry Levitt, a senior vice president at the Kaiser Family Foundation, said to CBSNews.com. "There's no doubt that people who are sick and need insurance and who have been locked out of the market are persevering. The real key... is creating a smooth and easy process for young and healthy fence-sitters."

Once open enrollment is closed, the market for 2014 is set. And in fact, premiums on the exchange for 2014 are going to be lower than predicted. Additionally, consumers will have a wide selection of plans to choose from: an enrollee in one of the 36 states served by HealthCare.gov will be able to choose from an average of 53 different plans.

It's no surprise the market looks strong for 2014 -- it offers a large potential new market for insurers. The nonpartisan Congressional Budget Office predicted earlier this year that about 7 million people will sign up during the six-month open enrollment period. By 2023, 25 million are expected to be on the new marketplace.

The question is what happens in 2015 if those 7 million aren't there in 2014.

"How do insurers interpret from year one, and what do they assume for year two?" Levitt asked. "That will determine how they set their premiums, or even if they stay in the market."

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