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Due to the rollout problems with the ACA website, some people are concerned that only the sickest will buy insurance.  This in turn would lead to a death spiral and doom the program.

Let me offer a counter force to that scenario.  Remember the scene from Rainman (here at the 1:20 mark) where Rain Man tells his brother there are lots of queens left in the blackjack deck?  The deck is now a profitable bet for the player.  Well, the pool of uninsured people is somewhat like a blackjack deck.  If many unprofitable cards (people) are removed from the deck (pool of uninsured) that leaves more profitable cards (people).  The blackjack player should double down, and so should the insurance companies.  

If initially only the sickest sign up, that means the available profit per uninsured person goes up.  From the view of the insurance companies, each uninsured person is now more profitable for them. This, I would think, will induce the insurance companies to go after the uninsured with all they have.  

I have a real world example from a few years ago.  I had to take care of changing my mother's medicare provider. I decided on a medicare advantage program.  The competition was so fierce, because the profit was so good, that insurance agents came to the house to sign my mother up.

I think there is a good chance that the competition between the insurance companies for the most profitable people will prevent an ACA death spiral.  Maybe it won't all be through the ACA website, but they will have a lot of incentive to get healthy people signed up.  Some way or another, they will be crawling over each other to sign up the healthiest.

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Comment Preferences

  •  Thing is, insurance, in and of itself is NOT (4+ / 0-)
    Recommended by:
    offgrid, 88kathy, annecros, Odysseus

    profitable. Insurance companies do what they can to give the appearance of paying out 100% of written premium. What they do is, all that money in written premium that sits, waiting to pay out in claims, is invested in stocks, and other investments. THAT'S where they make their money.

    The insurance company that I worked with (granted, it was property/casualty) had a target loss ratio of 100%. Some years it was 105%, some years it was 95%, but they paid cash for multi million dollar properties for expansion by money made investing written premium until it had to pay out.

    •  OK... (2+ / 0-)
      Recommended by:
      88kathy, Odysseus

      Your point is a good one.   There is, however, a big difference between 105% payout and 95% payout.  Going after healthy people bends the payout toward 95%, leaving more money to invest.

      •  Oh, I get that. The 105% years were years (3+ / 0-)
        Recommended by:
        88kathy, annecros, Odysseus

        where we had losses. Profit sharing wasn't as high, etc. But then next year might be 90%. Either way, it didn't matter. Even if it were 110%, while they were sitting on that premium, until they had to pay out 110%, it was being invested, every single day.

    •  Why, then, do they have to rebate premiums? (0+ / 0-)

      The Franken Amendment of the Affordable Care Act requires insurance companies to rebate money to their policy-holders each year when outlays for health care are less than 80% of premiums paid in.  So far, they've rebated money two years running.  The first year, the average rebate was $112.  Last year it was about $85.  It's paid in October and nobody has paid any attention to the events.

  •  You are on the right track as there (2+ / 0-)
    Recommended by:
    88kathy, StevenD56

    way too many naysayers out there that are always out there.  This will work and it is working.  Once they get the bugs out of that, it will be just like it was when you signed up your mother.   From what I have seen with the numbers out today, it is more of a success than the Medicare Part D that was done a decade ago.  It will all be good, thanks for your diary.

  •  in this scenario (1+ / 0-)
    Recommended by:
    88kathy
    If many unprofitable cards (people) are removed from the deck (pool of uninsured) that leaves more profitable cards (people).  The blackjack player should double down, and so should the insurance companies.
    The removal of each of those unprofitable cards costs the insurance company money. They are in the red and they need the healthy people to try to get back into the black.
    •  True... (1+ / 0-)
      Recommended by:
      88kathy

      I think we are making the same point.  Just like playing a hand of blackjack when the deck is bad cost the gambler, she must make up for it by betting bigger when the deck is good.

      When the insurance company is in a losing situation by insuring only sicker people initially, they must redouble their efforts to sign up the healthier people left in the pool of uninsured.  They need the healthier people, else they lose money.  

  •  And, in fact, insurers are out there (1+ / 0-)
    Recommended by:
    StevenD56

    marketing to customers directly already. I noticed two ads on this site in the last five minutes.

    You don't have to buy your insurance through the federal exchange, much less the federal exchange website.

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